Drosophila melanogaster lymph gland, the primary site of hematopoiesis, contains myeloid-like progenitor cells that differentiate into functional hemocytes in the circulation of pupae and adults. Fly hemocytes are dynamic and plastic, and they play diverse roles in the innate immune response and wound healing. Various hematopoietic regulators in the lymph gland ensure the developmental and functional balance between progenitors and mature blood cells. In addition, systemic factors, such as nutrient availability and sensory inputs, integrate environmental variabilities to synchronize the blood development in the lymph gland with larval growth, physiology, and immunity. This review examines the intrinsic and extrinsic factors determining the progenitor states during hemocyte development in the lymph gland and provides new insights for further studies that may extend the frontier of our collective knowledge on hematopoiesis and innate immunity.