Most hematological malignancies are associated with reduced expression of one or more components of the Endosomal Sorting Complex Required for Transport (ESCRT). However, the roles of ESCRT in stem cell and progenitor maintenance are not resolved. Parsing signaling pathways in relation to the canonical role of ESCRT poses a challenge. The Drosophila hematopoietic organ, the larval lymph gland, provides a path to dissect the roles of cellular trafficking pathways such as ESCRT in blood development and maintenance. Drosophila has 13 core ESCRT components. Knockdown of individual ESCRTs showed that only Vps28 and Vp36 were required in all lymph gland progenitors. Using the well-conserved ESCRT-II complex as an example of the range of phenotypes seen upon ESCRT depletion, we show that ESCRTs have cell-autonomous as well as non-autonomous roles in progenitor maintenance and differentiation. ESCRT depletion also sensitized posterior lobe progenitors to respond to immunogenic wasp infestation. We also identify key heterotypic roles for ESCRT in position-dependent control of Notch activation to suppress crystal cell differentiation. Our study shows that the cargo sorting machinery determines the identity of progenitors and their adaptability to the dynamic microenvironment. These mechanisms for control of cell fate may tailor developmental diversity in multiple contexts.