Adult stem cells maintain organ systems throughout the course of life and facilitate repair after injury or disease. A fundamental property of stem and progenitor cell division is the capacity to retain a proliferative state or generate differentiated daughter cells; however, little is currently known about signals that regulate the balance between these processes. Here, we characterize a proliferating cellular compartment in the adult Drosophila midgut. Using genetic mosaic analysis we demonstrate that differentiated cells in the epithelium arise from a common lineage. Furthermore, we show that reduction of Notch signalling leads to an increase in the number of midgut progenitor cells, whereas activation of the Notch pathway leads to a decrease in proliferation. Thus, the midgut progenitor's default state is proliferation, which is inhibited through the Notch signalling pathway. The ability to identify, manipulate and genetically trace cell lineages in the midgut should lead to the discovery of additional genes that regulate stem and progenitor cell biology in the gastrointestinal tract.