Risk of developing myelodysplastic syndromes (MDS) is significantly increased in both multiple myeloma (MM) and MGUS, suggesting that is therapy independent. However, the incidence and sequelae of dysplastic hematopoiesis at diagnosis are unknown. Here, we used multidimensional flow cytometry (MFC) to prospectively screen for presence of MDS-associated phenotypic alterations (MDS-PA) in the bone marrow of 285 MM patients enrolled in the PETHEMA/GEM2012MENOS65 trial (NCT01916252), and investigated the clinical significance of monocytic MDS-PA in a larger series of 1,252 patients enrolled in four PETHEMA/GEM protocols. At diagnosis, 33/285 (11.6%) cases displayed MDS-PA. Bulk- and single-cell targeted sequencing of MDS recurrently mutated genes in CD34+ progenitors (and dysplastic lineages) from 67 patients unveiled clonal hematopoiesis in 13/26 (50%) cases with MDS-PA versus 9/41 (22%) without MDS-PA; TET2 and NRAS were the most frequently mutated genes. Dynamics of MDS-PA at diagnosis and after autologous transplant were evaluated in 86/285 patients, and showed that in most cases (69/86, 80%) MDS-PA either persisted or remained absent in patients with or without MDS-PA at diagnosis, respectively. Noteworthy, MDS-associated mutations unfrequently emerged after high-dose therapy. Based on MFC profiling, we found that patients with MDS-PA have altered hematopoiesis and Treg distribution in the tumor microenvironment. Importantly, presence of monocytic MDS-PA at diagnosis anticipated greater risk of hematological toxicity and was independently associated with inferior progression-free (HR:1.5, P=.02) and overall survival (HR:1.7, P=.01). This study unveils the biological and clinical significance of dysplastic hematopoiesis in newly-diagnosed MM, which can be screened with moderate sensitivity using cost-effective MFC.