Inflammatory signaling supports host defense against infection, not only through immune cells, but also via regeneration of damaged tissue. Heightened regeneration, nevertheless, predisposes for all types of cancer and thus a trade-off exists between regeneration capacity and long-term tissue homeostasis. Here, we study the role of tissue-intrinsic regenerative inflammatory signaling in stem cell mitosis of the adult Drosophila midgut at the baseline and the infected state and its impact on intestinal host defense to infection and stem cell-mediated dysplasia. Through a quantitative genetics screen we find that stem cell mitosis is positively linked with the expression of eiger, Delta, upd3 and vein in the midgut, as well as with dysplasia and host defense, but negatively with enterocyte endoreplication. We provide evidence that intertwined trade-offs fine-tune midgut homeostasis, according to which stem cell mitosis through cyclin E in stem cells promotes the optimal host defense to infection, unless dysplasia ensues. However, cyclin E in enteroblasts promotes enterocyte endoreplication and counterbalances stem cell mitosis and dysplasia, providing an alternative but less efficient mechanism to support host defense.