Numerous cell types modulate hematopoiesis through soluble and membrane bound molecules. Whether developing hematopoietic progenitors of a particular lineage modulate the differentiation of other hematopoietic lineages is largely unknown. Here we aimed to investigate the influence of myeloid progenitors on CD34+ cell differentiation into CD56+ innate lymphocytes. Sorted CD34+ cells cultured in the presence of stem cell factor (SCF) and FMS-like tyrosine kinase 3 ligand (FLT3L) give rise to numerous cell types, including progenitors that expressed the prolactin receptor (PRLR). These CD34+PRLR+ myeloid-lineage progenitors were derived from granulocyte monocyte precursors (GMPs) and could develop into granulocytes in the presence of granulocyte-macrophage colony-stimulating factor (GM-CSF) in vitro. Moreover, CD34+PRLR+ myeloid progenitors lacked lymphoid developmental potential, but when stimulated with prolactin (PRL) they increased the differentiation of other CD34+ cell populations into the NK lineage in a non-contact dependent manner. Both mRNA and protein analyses show that PRL increased mothers against decapentaplegic homolog 7 (SMAD7) in CD34+PRLR+ myeloid cells, which reduced the production of transforming growth factor beta 1 (TGF-β1), a cytokine known to inhibit CD56+ cell development. Thus, we uncover an axis whereby CD34+PRLR+ GMPs inhibit CD56+ lineage development through TGF-β1 production and PRL stimulation leads to SMAD7 activation, repression of TGF-β1, resulting in CD56+ cell development.