The Unfolded Protein Response of the endoplasmic reticulum (UPRER) controls proteostasis by adjusting the protein folding capacity of the ER to environmental and cell-intrinsic conditions. In metazoans, loss of proteostasis results in degenerative and proliferative diseases and cancers. The cellular and molecular mechanisms causing these phenotypes remain poorly understood. Here we show that the UPRER is a critical regulator of intestinal stem cell (ISC) quiescence in Drosophila melanogaster. We find that ISCs require activation of the UPRER for regenerative responses, but that a tissue-wide increase in ER stress triggers ISC hyperproliferation and epithelial dysplasia in aging animals. These effects are mediated by ISC-specific redox signaling through Jun-N-terminal Kinase (JNK) and the transcription factor CncC. Our results identify a signaling network of proteostatic and oxidative stress responses that regulates ISC function and regenerative homeostasis in the intestinal epithelium.