The notion that plasma cells (PCs) are terminally differentiated has prevented intensive research in multiple myeloma (MM) about their phenotypic plasticity and differentiation. Here, we demonstrated in healthy individuals (n = 20) that the CD19-CD81 expression axis identifies three bone marrow (BM)PC subsets with distinct age-prevalence, proliferation, replication-history, immunoglobulin-production, and phenotype, consistent with progressively increased differentiation from CD19+CD81+ into CD19-CD81+ and CD19-CD81 - BMPCs. Afterwards, we demonstrated in 225 newly diagnosed MM patients that, comparing to normal BMPC counterparts, 59% had fully differentiated (CD19-CD81 -) clones, 38% intermediate-differentiated (CD19-CD81+) and 3% less-differentiated (CD19+CD81+) clones. The latter patients had dismal outcome, and PC differentiation emerged as an independent prognostic marker for progression-free (HR: 1.7; P = 0.005) and overall survival (HR: 2.1; P = 0.006). Longitudinal comparison of diagnostic vs minimal-residual-disease samples (n = 40) unraveled that in 20% of patients, less-differentiated PCs subclones become enriched after therapy-induced pressure. We also revealed that CD81 expression is epigenetically regulated, that less-differentiated clonal PCs retain high expression of genes related to preceding B-cell stages (for example: PAX5), and show distinct mutation profile vs fully differentiated PC clones within individual patients. Together, we shed new light into PC plasticity and demonstrated that MM patients harbouring less-differentiated PCs have dismal survival, which might be related to higher chemoresistant potential plus different molecular and genomic profiles.