Residence of cancer-propagating cells (CPCs) within preferential microenvironmental niches has a major part in evading therapy. However, the nature of niches involved and the mechanisms protecting CPCs remain largely unknown. We addressed these issues in mouse transplantation models of acute lymphoblastic leukemia (ALL). When the engrafted leukemic cells substantially damaged adjacent microenvironment in the bone marrow (BM), after chemotherapy small foci of CPCs were retained, surrounded by sheaths of supporting cells that comprise a protective niche. We investigated patients’ BM biopsies and found evidence of a similar process in patients receiving induction therapy. The efficacy of chemotherapy was enhanced by interfering with the niche formation or function. We therefore identified a therapy-induced niche that protects CPCs. Display omitted •A therapy-induced niche created by surviving LPCs is identified in the bone marrow•LPC-secreted cytokines recruit and modify Nestin+ MSCs to build the niche•The niche provides Furin to process GDF15 that confers chemoresistance on LPCs•The niche is associated with failure to achieve complete remission in ALL patients Microenvironmental niches can protect cancer-propagating cells from therapy and thus facilitate cancer relapse. Duan et al. examine conditions for niche formation and identify molecular players within such a microenvironment that support acute lymphoblastic leukemia cell survival.