High expression of the α chain of the interleukin-3 receptor (IL-3Rα; CD123) is a hallmark of acute myeloid leukemia (AML) leukemic stem cells (LSCs). Elevated CD123 expression is part of the diagnostic immunophenotyping of myeloid leukemia, and higher expression is associated with poor prognosis. However, the biological basis of the poorer prognosis is unclear, and may include heightened IL-3 signaling and non-cell autonomous interactions with the bone marrow (BM) microenvironment. We used TF-1 cells expressing different levels of CD123 and found elevated CD123 levels amplified the proliferative response to exogenous IL-3 and maintained viability in reducing IL-3 concentrations. This was associated with stronger activation of STAT5, Akt, and extracellular signal-regulated kinase 1/2 in vitro. Surprisingly, in vivo e14.5 fetal liver cells transduced with retroviral constructs to express high CD123 failed to engraft in syngeneic recipients. In exploring the underlying mechanism for this, we found that CXCR4, a key molecule involved in LSC/BM interactions, was specifically downregulated in CD123 overexpressing cells in a manner dependent on IL-3 signaling. CXCR4 downregulation was sufficient to alter the chemotactic response of hematopoietic cells to stromal derived factor-1 (SDF-1). Thus, we propose that the overexpression of CD123 in AML LSC dictates their location by altering CXCR4/SDF-1 interaction in the BM, raising the possibility that this mechanism underpins the egress of BM AML LSC and more mature cells into the circulation.