How multicellular organisms maintain immune homeostasis across various organs and cell types is an outstanding question in immune biology and cell signaling. In Drosophila, blood cells (hemocytes) respond to local and systemic cues to mount an immune response. While endosomal regulation of Drosophila hematopoiesis is reported, the role of endosomal proteins in cellular and humoral immunity is not well-studied. Here we demonstrate a functional role for endosomal proteins in immune homeostasis. We show that the ubiquitous trafficking protein ADP Ribosylation Factor 1 (ARF1) and the hemocyte-specific endosomal regulator Asrij differentially regulate humoral immunity. Asrij and ARF1 play an important role in regulating the cellular immune response by controlling the crystal cell melanization and phenoloxidase activity. ARF1 and Asrij mutants show reduced survival and lifespan upon infection, indicating perturbed immune homeostasis. The ARF1-Asrij axis suppresses the Toll pathway anti-microbial peptides (AMPs) by regulating ubiquitination of the inhibitor Cactus. The Imd pathway is inversely regulated- while ARF1 suppresses AMPs, Asrij is essential for AMP production. Several immune mutants have reduced Asrij expression, suggesting that Asrij co-ordinates with these pathways to regulate the immune response. Our study highlights the role of endosomal proteins in modulating the immune response by maintaining the balance of AMP production. Similar mechanisms can now be tested in mammalian hematopoiesis and immunity.