Drosophila has emerged as an important model system to discover and analyze genes controlling hematopoiesis. One regulatory network known to control hemocyte differentiation is the Janus kinase (JAK)/Signal Transducer and Activator of Transcription (STAT) signal-transduction pathway. A constitutive activation mutation of the Janus kinase Hopscotch (hopscotch(Tumorous-lethal); hop(Tum-l)) results in a leukemia-like over-proliferation of hemocytes and copious differentiation of lamellocytes during larval stages. Here we show that the Friend of GATA (FOG) protein U-shaped (Ush) is expressed in circulating and lymph gland hemocytes, where it plays a critical role in controlling blood cell proliferation and differentiation. Our findings demonstrate that a reduction in ush function results in hematopoietic phenotypes strikingly similar to those observed in hop(Tum-l) animals. These include lymph gland hypertrophy, increased circulating hemocyte concentration, and abundant production of lamellocytes. Forced expression of N-terminal truncated versions of Ush likewise leads to larvae with severe hematopoietic anomalies. In contrast, expression of wild-type Ush results in a strong suppression of hop(Tum-l) phenotypes. Taken together, our findings demonstrate that U-shaped acts to control larval hemocyte proliferation and suppress lamellocyte differentiation, likely regulating hematopoietic events downstream of Hop kinase activity. Such functions appear to be facilitated through Ush interaction with the hematopoietic GATA factor Serpent (Srp).