The endoderm is a critical first point of contact between a host and their immediate environment. Gut innate immune defenses contain bacterial populations and protect the host interior from invasive microbes. Although excess intestinal immune activity frequently promotes inflammatory illnesses, we know very little about the consequences of chronic innate immune activity exclusively in endodermal gut cells of an otherwise normal animal. To address this question, we generated a transgenic line that allows us to activate inflammatory signals in fly intestinal progenitor cells. We found that constitutive immune activity in intestinal progenitors disrupts expression of homeostatic regulators such as Notch signal transduction pathway components and induces hyperplasia throughout the gut. Consistent with links between immune activity and the Notch pathway, we showed that persistent immune signaling interferes with progenitor cell differentiation and exacerbates the formation of Notch-dependent intestinal tumors. These findings uncover a novel link between constitutive immune activity and tumorigenesis in intestinal stem cells.