Accumulating evidence suggests that tumor-initiating stem cells or cancer stem cells (CSCs) possibly originating from normal stem cells may be the root cause of certain malignancies. How stem cell homeostasis is impaired in tumor tissues is not well understood, although certain tumor suppressors have been implicated. In this study, we use the Drosophila neural stem cells (NSCs) called neuroblasts as a model to study this process. Loss-of-function of Numb, a key cell fate determinant with well-conserved mammalian counterparts, leads to the formation of ectopic neuroblasts and a tumor phenotype in the larval brain. Overexpression of the Drosophila tumor suppressor p53 (dp53) was able to suppress ectopic neuroblast formation caused by numb loss-of-function. This occurred in a non-apoptotic manner and was independent of Dacapo, the fly counterpart of the well-characterized mammalian p53 target p21 involved in cellular senescence. The observation that dp53 affected Edu incorporation into neuroblasts led us to test the hypothesis that dp53 acts through regulation of factors involved in cell cycle progression. Our results show that the inhibitory effect of dp53 on ectopic neuroblast formation was mediated largely through its regulation of Cyclin E (Cyc E). Overexpression of Cyc E was able to abrogate dp53's ability to rescue numb loss-of-function phenotypes. Increasing Cyc E levels by attenuating Archipelago (Ago), a recently identified transcriptional target of dp53 and a negative regulator of Cyc E, had similar effects. Conversely, reducing Cyc E activity by overexpressing Ago blocked ectopic neuroblast formation in numb mutant. Our results reveal an intimate connection between cell cycle progression and NSC self-renewal vs. differentiation control, and indicate that p53-mediated regulation of ectopic NSC self-renewal through the Ago/Cyc E axis becomes particularly important when NSC homeostasis is perturbed as in numb loss-of-function condition. This has important clinical implications.