Tissue homeostasis is maintained by differentiated progeny of residential stem cells. Both extrinsic signals and intrinsic factors play critical roles in the proliferation and differentiation of adult intestinal stem cells (ISCs). However, how extrinsic signals are transduced into ISCs still remains unclear. Here, we find that heparan sulfate (HS), a class of glycosaminoglycan (GAG) chains, negatively regulates progenitor proliferation and differentiation to maintain midgut homeostasis under physiological conditions. Interestingly, HS depletion in progenitors results in inactivation of Decapentaplegic (Dpp) signaling. Dpp signal inactivation in progenitors resembles HS-deficient intestines. Ectopic Dpp signaling completely rescued the defects caused by HS depletion. Taken together, these data demonstrate that HS is required for Dpp signaling to maintain midgut homeostasis. Our results provide insight into the regulatory mechanisms of how extrinsic signals are transduced into stem cells to regulate their proliferation and differentiation.