PRIMARY OBJECTIVES: I. To determine the Maximum Tolerated Dose (MTD) of bendamustine and lenalidomide in combination with dexamethasone in subjects with Multiple Myeloma (MM) in first or second relapse. (Phase I) II. To evaluate the confirmed response rate of bendamustine in combination with lenalidomide and dexamethasone in subjects with MM in first or second relapse. (Phase II) SECONDARY OBJECTIVES: I. To evaluate the safety of bendamustine in combination with lenalidomide and dexamethasone. (Phase I and II) II. To evaluate time-to-tumor-progression, progression-free survival, duration of response, and overall survival. (Phase II) OUTLINE: This is a phase I dose escalation study of bendamustine hydrochloride and lenalidomide followed by a phase II study. Patients receive dexamethasone orally or IV on days 1, 8, 15, and 22; bendamustine hydrochloride IV over 30 minutes on days 1 and 2; and oral lenalidomide once daily on days 1-21. Treatment repeats every 28 days for 6 courses in the absence of disease progression or unacceptable toxicity. Patients achieving at least stable disease after 6 courses may continue to receive lenalidomide and dexamethasone as above in the absence of disease progression or unacceptable toxicity. Dexamethasone may be discontinued after 12 courses of therapy at the treating investigator's discretion. After completion of study treatment, patients are followed at 4 weeks and then periodically for up to 2 years.