Virtually all species of coelomate animals contain blood cells that display a division of labor necessary for homeostasis. This functional partition depends upon the balance between proliferation and differentiation mostly accomplished in the hematopoietic organs. In Drosophila melanogaster, the lymph gland produces plasmatocytes and crystal cells that are not released until pupariation. Yet, throughout larval development, both hemocyte types increase in numbers. Mature plasmatocytes can proliferate but it is not known if crystal cell numbers increase by self-renewal or by de novo differentiation. We show that new crystal cells in third instar larvae originate through a Notch-dependent process of plasmatocyte transdifferentiation. This process occurs in the sessile clusters and is contingent upon the integrity of these structures. The existence of this hematopoietic tissue, relying on structure-dependent signaling events to promote blood homeostasis, creates a new paradigm for addressing outstanding questions in Drosophila hematopoiesis and establishing further parallels with vertebrate systems.