The lesswright (lwr) gene encodes an enzyme that conjugates a small ubiquitin-related modifier (SUMO). Since the conjugation of SUMO occurs in many different proteins, a variety of cellular processes probably require lwr function. Here, we demonstrate that lwr function regulates the production of blood cells (hemocytes) in Drosophila larvae. lwr mutant larvae develop many melanotic tumors in the hemolymph at the third instar stage. The formation of melanotic tumors is due to a large number of circulating hemocytes, which is approximately 10 times higher than those of wild type. This overproduction of hemocytes is attributed to the loss of lwr function primarily in hemocytes and the lymph glands, a hematopoietic organ in Drosophila larvae. High incidences of Dorsal (Dl) protein in the nucleus were observed in lwr mutant hemocytes, and the dl and Dorsal-related immunity factor (Dif) mutations were found to be suppressors of the lwr mutation. Therefore, the lwr mutation leads to the activation of these Rel-related proteins, key transcription factors in hematopoiesis. We also demonstrate that dl and Dif play different roles in hematopoiesis. dl primarily stimulates plasmatocyte production, but Dif controls both plasmatocyte and lamellocyte production.