Drosophila larval hematopoietic organs produce circulating hemocytes that ensure the cellular host defense by recognizing and neutralizing non-self or noxious objects through phagocytosis or encapsulation and melanization. Hematopoietic lineage specification as well as blood cell proliferation and differentiation are tightly controlled. Mutations in genes that regulate lymph gland cell proliferation and hemocyte numbers in the body cavity cause hematopoietic organ overgrowth and hemocyte overproliferation. Occasionally, mutant hemocytes invade self-tissues, behaving like neoplastic malignant cells. Two alleles of the Polycomb group (PcG) gene multi sex combs (mxc) were previously isolated as such lethal malignant blood neoplasm mutations. PcG genes regulate Hox gene expression in vertebrates and invertebrates and participate in mammalian hematopoiesis control. Hence we investigated the need for mxc in Drosophila hematopoietic organs and circulating hemocytes. We show that mxc-induced hematopoietic hyperplasia is cell autonomous and that mxc mainly controls plasmatocyte lineage proliferation and differentiation in lymph glands and circulating hemocytes. Loss of the Toll pathway, which plays a similar role in hematopoiesis, counteracted mxc hemocyte proliferation but not mxc hemocyte differentiation. Several PcG genes tested in trans had no effects on mxc hematopoietic phenotypes, whereas the trithorax group gene brahma is important for normal and mutant hematopoiesis control. We propose that mxc provides one of the regulatory inputs in larval hematopoiesis that control normal rates of plasmatocyte and crystal lineage proliferation as well as normal rates and timing of hemocyte differentiation.