Hematopoiesis involves the orderly production of millions of blood cells per second from a small number of essential bone marrow cells termed hematopoietic stem cells (HSCs). Ethanol suppresses normal hematopoiesis resulting in leukopenia, anemia, and thrombocytopenia and may also predispose to the development of diseases such as myelodysplasia (MDS) and acute leukemia. Currently the exact mechanisms by which ethanol perturbs hematopoiesis are unclear. The aldehyde dehydrogenase (ALDH) gene family plays a major role in the metabolism of reactive aldehydes derived from ethanol in the liver and other organs. At least one of the ALDH isoforms, ALDH1A1, is expressed at high levels in HSCs in humans, mice, and other organisms. Recent data indicate that ALDH1A1 and possibly other ALDH isoforms may metabolize reactive aldehydes in HSCs and other hematopoietic cells as they do in the liver and elsewhere. In addition, loss of these ALDHs leads to perturbation of a variety of cell processes that may predispose HSCs to disorders in growth and leukemic transformation. From these findings, we suggest a hypothesis that the cytopenias and possible increased risk of MDS and acute leukemia in heavy alcohol users is due to polymorphisms in genes responsible for metabolism of alcohol derived reactive aldehydes and repair of their DNA adducts in HSCs and other hematopoietic cells. In the article, we will summarize the biological properties of hematopoietic cells and diseases related to ethanol consumption, discuss molecular characteristics of ethanol metabolism, and describe a model to explain how ethanol derived reactive aldehydes may promote HSC damage.