Bag of Marbles (Bam) is a stem cell differentiation factor in the Drosophila germ line. Here, we demonstrate that Bam has a crucial function in the lymph gland, the tissue that orchestrates the second phase of Drosophila hematopoiesis. In bam mutant larvae, depletion of hematopoietic progenitors is observed, coupled with prodigious production of differentiated hemocytes. Conversely, forced expression of Bam in the lymph gland results in expansion of prohemocytes and substantial reduction of differentiated blood cells. These findings identify Bam as a regulatory protein that promotes blood cell precursor maintenance and prevents hemocyte differentiation during larval hematopoiesis. Cell-specific knockdown of bam function via RNAi expression revealed that Bam activity is required cell-autonomously in hematopoietic progenitors for their maintenance. microRNA-7 (mir-7) mutant lymph glands present with phenotypes identical to those seen in bam-null animals and mutants double-heterozygous for bam and mir-7 reveal that the two cooperate to maintain the hematopoietic progenitor population. By contrast, analysis of yan mutant lymph glands revealed that this transcriptional regulator promotes blood cell differentiation and the loss of prohemocyte maintenance. Expression of Bam or mir-7 in hematopoietic progenitors leads to a reduction of Yan protein. Together, these results demonstrate that Bam and mir-7 antagonize the differentiation-promoting function of Yan to maintain the stem-like hematopoietic progenitor state during hematopoiesis.