A lack of models that recapitulate the complexity of human bone marrow has hampered mechanistic studies of normal and malignant hematopoiesis and the validation of novel therapies. Here, we describe a step-wise, directed-differentiation protocol in which organoids are generated from iPSCs committed to mesenchymal, endothelial and hematopoietic lineages. These 3-dimensional structures capture key features of human bone marrow - stroma, lumen-forming sinusoids and myeloid cells including pro-platelet forming megakaryocytes. The organoids supported the engraftment and survival of cells from patients with blood malignancies, including cancer types notoriously difficult to maintain ex vivo. Fibrosis of the organoid occurred following TGFβ stimulation and engraftment with myelofibrosis but not healthy donor-derived cells, validating this platform as a powerful tool for studies of malignant cells and their interactions within a human bone marrow-like milieu. This enabling technology is likely to accelerate discovery and prioritization of novel targets for bone marrow disorders and blood cancers.