Overwhelming evidence from leukemia research has shown that the clonal population of neoplastic cells exhibits marked heterogeneity with respect to proliferation and differentiation. There are rare stem cells within the leukemic population that possess extensive proliferation and self-renewal capacity not found in the majority of the leukemic cells. These leukemic stem cells are necessary and sufficient to maintain the leukemia. While the hematopoietic stem cell (HSC) origin of CML was first suggested over 30 years ago, recently CML-initiating cells beyond HSCs are also being investigated. We have previously isolated fetal liver kinase-1-positive (Flk1(+)) cells carrying the BCR/ABL fusion gene from the bone marrow of Philadelphia chromosome-positive (Ph(+)) patients with hemangioblast property. Here, we showed that CML patient-derived Flk1(+)CD31(-)CD34(-) MSCs had normal morphology, phenotype and karyotype but appeared impaired in immuno-modulatory function. The capacity of patient Flk1(+)CD31(-)CD34(-) MSCs to inhibit T lymphocyte activation and proliferation was impaired in vitro. CML patient-derived MSCs have impaired immuno-modulatory functions, suggesting that the dysregulation of hematopoiesis and immune response may originate from MSCs rather than HSCs. MSCs might be a potential target for developing efficacious cures for CML.