In chronic myelogenous leukemia (CML), hematopoietic stem cell transformation leads to increased proliferation of malignant myeloid progenitors. The cyclin-dependent kinase inhibitor p27kip1 (p27) is a critical negative regulator of hematopoietic progenitor proliferation and pool size that is deregulated in BCR-ABL expressing cell lines. However, cell-context specific regulation of p27 in primary human CML progenitors and its contribution to CML progenitor expansion remain unclear. Here, we investigated p27 regulation and function in (1) CD34+ cells from CML patients and (2) human CD34+ cells ectopically expressing the BCR-ABL gene following retrovirus transduction. We found that p27 levels are increased in CML CD34+ cells related to a BCR-ABL-dependent increase in p27 protein translation. However, p27 was relocated to the cytoplasm in CML progenitors and nuclear p27 levels were reduced, allowing increased cell cycling and expansion in culture. Cytoplasmic relocation of p27 in CML progenitors was related to signaling through BCR-ABL Y177, activation of the AKT kinase and phosphorylation of p27 on Thr-157 (T157). Expression of a mutant p27 that cannot be phosphorylated on T157 significantly inhibited CML progenitor proliferation. These studies show the importance of BCR-ABL-Y177-AKT-mediated p27 phosphorylation in altered p27 localization and enhanced proliferation and expansion of primary CML progenitors.