Epithelial homeostasis in the posterior midgut of Drosophila is maintained by multipotent intestinal stem cells (ISCs). ISCs self-renew and produce enteroblasts (EBs) that differentiate into either enterocytes (ECs) or enteroendocrine cells (EEs) in response to differential Notch (N) activation. Various environmental and growth signals dynamically regulate ISC activity, but their integration with differentiation cues in the ISC lineage remains unclear. Here we identify Notch-mediated repression of Tuberous Sclerosis Complex 2 (TSC2) in EBs as a required step in the commitment of EBs into the EC fate. The TSC1/2 complex inhibits TOR signaling, acting as a tumor suppressor in vertebrates and regulating cell growth. We find that TSC2 is expressed highly in ISCs, where it maintains stem cell identity, and that N-mediated repression of TSC2 in EBs is required and sufficient to promote EC differentiation. Regulation of TSC/TOR activity by N signaling thus emerges as critical for maintenance and differentiation in somatic stem cell lineages.