Stem cells can divide asymmetrically with respect to cell fate, producing a copy of themselves (self-renewal), while giving rise to progeny that will differentiate along a specific lineage. Mechanisms that bias the balance towards self-renewal or extend the proliferative capacity of the differentiating progeny can result in tissue overgrowth and, eventually, the formation of tumors. Recent work has explored the role of heterochromatin and heterochromatin-associated proteins in the regulation of stem cell behavior under homeostatic conditions, but less is known about their possible roles in potentiating or suppressing stem cell overproliferation. Here we used ectopic activation of the Jak/STAT pathway in germline and somatic stem cells of the D. melanogaster testis as an in vivo model to probe the function of Heterochromatin Protein 1 (HP1) in stem cell overproliferation. Forced expression of HP1 in either early germ or somatic cells suppressed the overgrowth of testes in response to ectopic Jak/STAT activation. Interestingly, HP1 expression led to distinct phenotypes, depending on whether it was overexpressed in somatic or germ cells, possibly reflecting different cell-autonomous and non-autonomous effects in each cell type. Our results provide a new framework for further in vivo studies aimed at understanding the interactions between heterochromatin and uncontrolled stem cell proliferation, as well as the complex cross-regulatory interactions between the somatic and germline lineages in the Drosophila testis.