Cytopenias occur frequently in systemic lupus erythematosus, rheumatoid arthritis, Felty's syndrome, and large granular lymphocyte (LGL) leukemia, but the bone marrow microenvironment has not been systematically studied. In LGL leukemia (n = 24), retrospective analysis of bone marrow (BM) histopathology revealed severe fibrosis in 15 of 24 patients (63%) in association with the presence of cytopenias, occurrence of autoimmune diseases, and splenomegaly, but was undetectable in control cases with B cell malignancies (n = 11). Fibrosis severity correlated with T cell LGL cell numbers in the BM, but not in the periphery, suggesting deregulation is limited to the BM microenvironment. To identify fibrosis-initiating populations, primary mesenchymal stromal cultures (MSCs) from patients were characterized and found to display proliferation kinetics and overabundant collagen deposition, but displayed normal telomere lengths and osteoblastogenic, chondrogenic, and adipogenic differentiation potentials. To determine the effect of fibrosis on healthy hematopoietic progenitor cells (HPCs), bioartificial matrixes from rat tail or purified human collagen were found to suppress HPC differentiation and proliferation. The ability of patient MSCs to support healthy HSC proliferation was significantly impaired, but could be rescued with collagenase pretreatment. Clustering analysis confirmed the undifferentiated state of patient MSCs, and pathway analysis revealed an inverse relationship between cell division and profibrotic ontologies associated with reduced basic fibroblast growth factor production, which was confirmed by ELISA. Reconstitution with exogenous basic fibroblast growth factor normalized patient MSC proliferation, collagen deposition, and HPC supportive function, suggesting LGL BM infiltration and secondary accumulation of MSC-derived collagen is responsible for hematopoietic failure in autoimmune-associated cytopenias in LGL leukemia.