Proteasome inhibition is a novel treatment for several hematological malignancies. However, resistance to the proteasome inhibitor bortezomib (BTZ, Velcade) is an emerging clinical impediment. Mutations in the β5 subunit of the proteasome, the primary target of BTZ, have been associated with drug resistance. However, the exact mechanism by which these mutations contribute to BTZ resistance, is still largely unknown. Toward this end, we here developed BTZ-resistant multiple myeloma (8226) and acute lymphoblastic leukemia (CCRF-CEM) cell line models by exposure to stepwise increasing concentrations of BTZ. Characterization of the various BTZ-resistant cells revealed upregulation of mutant β5 subunit of the proteasome. These newly identified β5-subunit mutations, along with previously described mutations, formed a mutation cluster region in the BTZ-binding pocket of the β5 subunit, that of the S1 specificity pocket in particular. Moreover, we provide the first evidence that the mechanism underlying BTZ resistance in these tumor cells is impaired binding of BTZ to the mutant β5 subunit of the proteasome. We propose that proteasome subunit overexpression is an essential compensatory mechanism for the impaired catalytic activity of these mutant proteasomes. Our findings further suggest that second-generation proteasome inhibitors that target the α7 subunit of the proteasome can overcome this drug resistance modality.