Recurrence of multiple myeloma (MM) after therapy suggests the presence of tumor-initiating subpopulations. In our study, we performed flow cytometry-based Hoechst 33342 staining to evaluate the existence of a MM population with stem-like features known as side population (SP) cells. SP cells exhibit substantial heterogeneity in MM cell lines and primary MM cells; express CD138 antigen in MM cell lines; display higher mRNA expression and functional activity of ABCG2 transporter; and have a higher proliferation index compared with non-SP cells. We observed evidence for clonogenic potential of SP cells, as well as the ability of SP cells to regenerate original population. Moreover, SP cells revealed higher tumorigenicity compared with non-SP cells. Importantly, lenalidomide decreased the percentage and clonogenicity of SP cells, and also induced phosphorylation changes in Akt, GSK-3α/β, MEK1, c-Jun, p53, and p70S6K in SP cells. Adherence to bone marrow stromal cells (BMSCs) increased the percentage, viability, and proliferation potential of SP cells. Lenalidomide and thalidomide abrogated this stimulatory effect of BMSCs and significantly decreased the percentage of SP cells. Our studies demonstrate a novel mechanism of action for lenalidomide, namely targeting SP fraction, providing the framework for new therapeutic strategies targeting subpopulations of MM cells including presumptive stem cells.