In multicellular organisms, apoptotic cells induce compensatory proliferation of neighboring cells to maintain tissue homeostasis. In the Drosophila wing imaginal disc, dying cells trigger compensatory proliferation through secretion of the mitogens Decapentaplegic (Dpp) and Wingless (Wg). This process is under control of the initiator caspase Dronc, but not effector caspases. Here we show that a second mechanism of apoptosis-induced compensatory proliferation exists. This mechanism is dependent on effector caspases which trigger the activation of Hedgehog (Hh) signaling for compensatory proliferation. Furthermore, whereas Dpp and Wg signaling is preferentially employed in apoptotic proliferating tissues, Hh signaling is activated in differentiating eye tissues. Interestingly, effector caspases in photoreceptor neurons stimulate Hh signaling which triggers cell-cycle reentry of cells that had previously exited the cell cycle. In summary, dependent on the developmental potential of the affected tissue, different caspases trigger distinct forms of compensatory proliferation in an apparent nonapoptotic function.