Reactive oxygen species (ROS), produced during various electron transfer reactions in vivo, are generally considered to be deleterious to cells. In the mammalian haematopoietic system, haematopoietic stem cells contain low levels of ROS. However, unexpectedly, the common myeloid progenitors (CMPs) produce significantly increased levels of ROS(2). The functional significance of this difference in ROS level in the two progenitor types remains unresolved. Here we show that Drosophila multipotent haematopoietic progenitors, which are largely akin to the mammalian myeloid progenitors, display increased levels of ROS under in vivo physiological conditions, which are downregulated on differentiation. Scavenging the ROS from these haematopoietic progenitors by using in vivo genetic tools retards their differentiation into mature blood cells. Conversely, increasing the haematopoietic progenitor ROS beyond their basal level triggers precocious differentiation into all three mature blood cell types found in Drosophila, through a signalling pathway that involves JNK and FoxO activation as well as Polycomb downregulation. We conclude that the developmentally regulated, moderately high ROS level in the progenitor population sensitizes them to differentiation, and establishes a signalling role for ROS in the regulation of haematopoietic cell fate. Our results lead to a model that could be extended to reveal a probable signalling role for ROS in the differentiation of CMPs in mammalian haematopoietic development and oxidative stress response.