Allogeneic transplantation with umbilical cord blood (UCB) is limited in adult recipients by a low CD34+ cell dose. Clinical trials incorporating cytokine-based UCB in vitro expansion have not demonstrated significant shortening of hematologic recovery despite substantial increases in CD34+ cell dose, suggesting loss of stem cell function. To sustain stem cell function during cytokine-based in vitro expansion, a feeder layer of human mesenchymal stem cells (MSCs) was incorporated in an attempt to mimic the stem cell niche in the marrow microenvironment. UCB expansion on MSCs resulted in a 7.7-fold increase in total LTC-IC output and a 3.8-fold increase of total early CD34+ progenitors (CD38−/HLA-DR−). Importantly, early CD34+/CD38−/HLA-DR− progenitors from cultures expanded on MSCs demonstrated higher cytoplasmic expression of the cell-cycle inhibitor, p21cip1/waf1, and the antiapoptotic protein, BCL-2, compared with UCB expanded in cytokines alone, suggesting improved maintenance of stem cell function in the presence of MSCs. Moreover, the presence of MSCs did not elicit UCB lymphocyte activation. Taken together, these results strongly suggest that the addition of MSCs as a feeder layer provides improved conditions for expansion of early UCB CD34+/CD38−/HLA-DR− hematopoietic progenitors and may serve to inhibit their differentiation and rates of apoptosis during short-term in vitro expansion.