Icsbp/Irf8 is an interferon regulatory transcription factor that functions as a suppressor of myeloid leukemias. Consistent with this activity, Icsbp represses a set of genes encoding proteins that promote cell proliferation/survival. One such gene encodes Gas2, a calpain inhibitor. We previously found that increased Gas2-expression in Bcr-abl+ cells stabilized βcatenin; a Calpain substrate. This was of interest, because βcatenin contributes to disease progression in chronic myeloid leukemia (CML). Calpain has additional substrates implicated in leukemogenesis, including Stat5. In the current study, we hypothesized that Stat5 activity in CML is regulated by Gas2/Calpain. We found that Bcr-abl-induced, Shp2-dependent dephosphorylation of Icsbp impaired repression of GAS2 by this transcription factor. The consequent decrease in Calpain activity stabilized Stat5 protein; increasing the absolute abundance of both phospho and total Stat5. This enhanced repression of the IRF8 promoter by Stat5 in a manner dependent on Icsbp, Gas2 and Calpain, but not Stat5 tyrosine phosphorylation. During normal myelopoiesis, increased expression and phosphorylation of Icsbp inhibits Calpain. In contrast, constitutive activation of Shp2 in Bcr-abl+ cells impairs regulation of Gas2/Calpain by Icsbp, aberrantly stabilizing Stat5 and enhancing IRF8 repression. This novel feedback mechanism enhances leukemogenesis by increasing Stat5 and decreasing Icsbp. Bcr-abl targeted tyrosine kinase inhibitors (TKIs) provide long term disease control, but CML is not cured by these agents. Our studies suggest targeting Calpain might be a rational therapeutic approach to decrease persistent leukemia stem cells (LSCs) during TKI-treatment.