Computer-based imaging systems are becoming important tools for quantitative assessment of peripheral blood and bone marrow samples to help experts diagnose blood disorders such as acute leukemia. These systems generally initiate a segmentation stage where white blood cells are separated from the background and other nonsalient objects. As the success of such imaging systems mainly depends on the accuracy of this stage, studies attach great importance for developing accurate segmentation algorithms. Although previous studies give promising results for segmentation of sparsely distributed normal white blood cells, only a few of them focus on segmenting touching and overlapping cell clusters, which is usually the case when leukemic cells are present. In this article, we present a new algorithm for segmentation of both normal and leukemic cells in peripheral blood and bone marrow images. In this algorithm, we propose to model color and shape characteristics of white blood cells by defining two transformations and introduce an efficient use of these transformations in a marker-controlled watershed algorithm. Particularly, these domain specific characteristics are used to identify markers and define the marking function of the watershed algorithm as well as to eliminate false white blood cells in a postprocessing step. Working on 650 white blood cells in peripheral blood and bone marrow images, our experiments reveal that the proposed algorithm improves the segmentation performance compared with its counterparts, leading to high accuracies for both sparsely distributed normal white blood cells and dense leukemic cell clusters. © 2014 International Society for Advancement of Cytometry.