Both in utero and postnatal hematopoietic stem cell (HSC) transplantation would benefit from the development of approaches that produce increased levels of engraftment or a reduction in the period of time required for reconstitution. We used the in utero model of human-sheep HSC transplantation to investigate ways of improving engraftment and differentiation of donor cells after transplantation. We hypothesized that providing a more suitable microenvironment in the form of human stromal cell progenitors simultaneously with the transplanted human HSC would result in higher rates of engraftment or differentiation of the human cells in this xenogeneic model. The results presented here demonstrate that the cotransplantation of both autologous and allogeneic human bone marrow-derived stromal cell progenitors resulted in an enhancement of long-term engraftment of human cells in the bone marrow of the chimeric animals and in earlier and higher levels of donor cells in circulation both during gestation and after birth. By using marked stromal cells, we have also demonstrated that injected stromal cells alone engraft and remain functional within the sheep hematopoietic microenvironment. Application of this method to clinical HSC transplantation could potentially lead to increased levels of long-term engraftment, a reduction in the time for hematopoietic reconstitution, and a means of delivery of foreign genes to the hematopoietic system.