Hematopoietic reconstitution, following bone marrow or stem cell transplantation, requires a microenvironment niche capable of supporting both immature progenitors and stem cells with the capacity to differentiate and expand. Osteoblasts comprise one important component of this niche. We determined that treatment of human primary osteoblasts (HOB) with melphalan or VP-16 resulted in increased phospho-Smad2, consistent with increased TGF-β1 activity. This increase was coincident with reduced HOB capacity to support immature B lineage cell chemotaxis and adherence. The supportive deficit was not limited to committed progenitor cells, as human embryonic stem cells (hESC) or human CD34+ bone marrow cells co-cultured with HOB pre-exposed to melphalan, VP-16 or rTGF-β1 had profiles distinct from the same populations co-cultured with untreated HOB. Functional support deficits were downstream of changes in HOB gene expression profiles following chemotherapy exposure. Melphalan and VP-16 induced damage of HOB suggests vulnerability of this critical niche to therapeutic agents frequently utilized in pre-transplant regimens and suggests that dose escalated chemotherapy may contribute to post-transplantation hematopoietic deficits by damaging structural components of this supportive niche.