Over the years, the fruit fly Drosophila melanogaster has become a major invertebrate model to study developmental and evolutionary aspects of both humoral and cellular aspects of innate immunity. Drosophila hematopoiesis which supplies three types of circulating hemocytes, occurs in two spatially and temporally distinct phases during development. The first embryonic phase is described in detail in accompanying reviews in this Int. J. Dev. Biol. Special Issue. The second phase takes place at the end of larval development in a specialised hematopoietic organ, termed the lymph gland. We review here recent studies on the ontogeny of the lymph gland, focusing on the formation and role of the Posterior Signalling Center which acts as a niche for hematopoietic progenitors. We then report recent progress in understanding the dedicated cellular immune response of Drosophila larvae against parasitization by Hymenopterae, a common threat for many Dipterae. This response involves the differentiation of lamellocytes, a cryptic cell fate, revealing the high degree of plasticity of Drosophila hematopoiesis. We end up by integrating studies in Drosophila within a more general picture of insect hematopoiesis and hemocyte homeostasis.