Mutations in the tumor-suppressor Hippo pathway lead to activation of the transcriptional coactivator Yorkie (Yki), which enhances cell proliferation autonomously and causes cell death non-autonomously. While Yki-induced cell proliferation has extensively been studied, the mechanism by which Yki causes cell death in nearby wild-type cells, a phenomenon called supercompetition, and its role in tumorigenesis remained unknown. Here, we show that Yki-induced supercompetition is essential for tumorigenesis and is driven by non-autonomous induction of autophagy. Clones of cells mutant for a Hippo pathway component fat activate Yki and cause autonomous tumorigenesis and non-autonomous cell death in Drosophila eye-antennal discs. Through a genetic screen in Drosophila, we find that mutations in autophagy-related genes or NF-κB genes in surrounding wild-type cells block both fat-induced tumorigenesis and supercompetition. Mechanistically, fat mutant cells upregulate Yki-target microRNA bantam, which elevates protein synthesis levels via activation of TOR signaling. This induces elevation of autophagy in neighboring wild-type cells, which leads to downregulation of IκB Cactus and thus causes NF-κB-mediated induction of the cell death gene hid. Crucially, upregulation of bantam is sufficient to make cells to be supercompetitors and downregulation of endogenous bantam is sufficient for cells to become losers of cell competition. Our data indicate that cells with elevated Yki-bantam signaling cause tumorigenesis by non-autonomous induction of autophagy that kills neighboring wild-type cells.