The host tissue microenvironment influences malignant cell proliferation and metastasis, but little is known about how tumor-induced changes in the microenvironment affect benign cellular ecosystems. Applying dynamic in vivo imaging to a mouse model, we show that leukemic cell growth disrupts normal hematopoietic progenitor cell (HPC) bone marrow niches and creates abnormal microenvironments that sequester transplanted human CD34⁺ (HPC-enriched) cells. CD34⁺ cells in leukemic mice declined in number over time and failed to mobilize into the peripheral circulation in response to cytokine stimulation. Neutralization of stem cell factor (SCF) secreted by leukemic cells inhibited CD34⁺ cell migration into malignant niches, normalized CD34⁺ cell numbers, and restored CD34⁺ cell mobilization in leukemic mice. These data suggest that the tumor microenvironment causes HPC dysfunction by usurping normal HPC niches and that therapeutic inhibition of HPC interaction with tumor niches may help maintain normal progenitor cell function in the setting of malignancy.