Self-renewal of intestinal stem cells is controlled by Wingless/Wnt-β catenin signaling in both Drosophila and mammals. As Axin is a rate-limiting factor in Wingless signaling, its regulation is essential. Iduna is an evolutionarily conserved ubiquitin E3 ligase that has been identified as a crucial regulator for degradation of ADP-ribosylated Axin and, thus, of Wnt/β-catenin signaling. However, its physiological significance remains to be demonstrated. Here, we generated loss-of-function mutants of Iduna to investigate its physiological role in Drosophila. Genetic depletion of Iduna causes the accumulation of both Tankyrase and Axin. Increase of Axin protein in enterocytes non-autonomously enhanced stem cell divisions in the Drosophila midgut. Enterocytes secreted Unpaired proteins and thereby stimulated the activity of the JAK-STAT pathway in intestinal stem cells. A decrease in Axin gene expression suppressed the over-proliferation of stem cells and restored their numbers to normal levels in Iduna mutants. These findings suggest that Iduna-mediated regulation of Axin proteolysis is essential for tissue homeostasis in the Drosophila midgut.