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.