Although much is known about injury-induced signals that increase rates of Drosophila melanogaster midgut intestinal stem cell (ISC) proliferation, it is largely unknown how ISC activity returns to quiescence after injury. In this paper, we show that the bone morphogenetic protein (BMP) signaling pathway has dual functions during midgut homeostasis. Constitutive BMP signaling pathway activation in the middle midgut mediated regional specification by promoting copper cell differentiation. In the anterior and posterior midgut, injury-induced BMP signaling acted autonomously in ISCs to limit proliferation and stem cell number after injury. Loss of BMP signaling pathway members in the midgut epithelium or loss of the BMP signaling ligand decapentaplegic from visceral muscle resulted in phenotypes similar to those described for juvenile polyposis syndrome, a human intestinal tumor caused by mutations in BMP signaling pathway components. Our data establish a new link between injury and hyperplasia and may provide insight into how BMP signaling mutations drive formation of human intestinal cancers.