Hematopoietic insufficiency is the hallmark of acute myeloid leukemia (AML) and predisposes patients to life-threatening complications such as bleeding and infections. Addressing the contribution of mesenchymal stromal cells (MSC) to AML-induced hematopoietic failure we show that MSC from AML patients (n=64) exhibit significant growth deficiency and impaired osteogenic differentiation capacity. This was molecularly reflected by a specific methylation signature affecting pathways involved in cell differentiation, proliferation and skeletal development. In addition, we found distinct alterations of hematopoiesis-regulating factors such as Kit-ligand and Jagged1 accompanied by a significantly diminished ability to support CD34+ hematopoietic stem and progenitor cells in long-term culture-initiating cells (LTC-ICs) assays. This deficient osteogenic differentiation and insufficient stromal support was reversible and correlated with disease status as indicated by Osteocalcin serum levels and LTC-IC frequencies returning to normal values at remission. In line with this, cultivation of healthy MSC in conditioned medium from four AML cell lines resulted in decreased proliferation and osteogenic differentiation. Taken together, AML-derived MSC are molecularly and functionally altered and contribute to hematopoietic insufficiency. Inverse correlation with disease status and adoption of an AML-like phenotype after exposure to leukemic conditions suggests an instructive role of leukemic cells on bone marrow microenvironment.