Xenotransplantation models represent powerful tools for the investigation of healthy and malignant human hematopoiesis. However, current models do not fully mimic the components of the human bone marrow (BM) microenvironment, and they enable only limited engraftment of samples from some human malignancies. Here we show that a xenotransplantation model bearing subcutaneous humanized ossicles with an accessible BM microenvironment, formed by in situ differentiation of human BM-derived mesenchymal stromal cells, enables the robust engraftment of healthy human hematopoietic stem and progenitor cells, as well as primary acute myeloid leukemia (AML) samples, at levels much greater than those in unmanipulated mice. Direct intraossicle transplantation accelerated engraftment and resulted in the detection of substantially higher leukemia-initiating cell (LIC) frequencies. We also observed robust engraftment of acute promyelocytic leukemia (APL) and myelofibrosis (MF) samples, and identified LICs in these malignancies. This humanized ossicle xenotransplantation approach provides a system for modeling a wide variety of human hematological diseases.