Unresolved endoplasmic reticulum (ER) stress in the epithelium can provoke intestinal inflammation. Hypomorphic variants of ER stress response mediators, such as X-box–binding protein 1 (XBP1), confer genetic risk for inflammatory bowel disease. We report here that hypomorphic Xbp1 function instructs a multilayered regenerative response in the intestinal epithelium. This is characterized by intestinal stem cell (ISC) expansion as shown by an inositol-requiring enzyme 1α (Ire1α)–mediated increase in Lgr5+ and Olfm4+ ISCs and a Stat3-dependent increase in the proliferative output of transit-amplifying cells. These consequences of hypomorphic Xbp1 function are associated with an increased propensity to develop colitis-associated and spontaneous adenomatous polyposis coli (APC)–related tumors of the intestinal epithelium, which in the latter case is shown to be dependent on Ire1α. This study reveals an unexpected role for Xbp1 in suppressing tumor formation through restraint of a pathway that involves an Ire1α- and Stat3-mediated regenerative response of the epithelium as a consequence of ER stress. As such, Xbp1 in the intestinal epithelium not only regulates local inflammation but at the same time also determines the propensity of the epithelium to develop tumors.