Specification of the anterior-posterior axis in Drosophila oocytes requires proper communication between the germ-line cells and the somatically derived follicular epithelial cells. Multiple signaling pathways, including Notch, contribute to oocyte polarity formation by controlling the temporal and spatial pattern of follicle cell differentiation and proliferation. Here we show that the newly identified Hippo tumor-suppressor pathway plays a crucial role in the posterior follicle cells in the regulation of oocyte polarity. Disruption of the Hippo pathway, including major components Hippo, Salvador, and Warts, results in aberrant follicle-cell differentiation and proliferation and dramatic disruption of the oocyte anterior-posterior axis. These phenotypes are related to defective Notch signaling in follicle cells, because misexpression of a constitutively active form of Notch alleviates the oocyte polarity defects. We also find that follicle cells defective in Hippo signaling accumulate the Notch receptor and display defects in endocytosis markers. Our findings suggest that the interaction between Hippo and classic developmental pathways such as Notch is critical to spatial and temporal regulation of differentiation and proliferation and is essential for development of the body axes in Drosophila.