T lymphocytes and a subpopulation of B lymphocytes express the CD5 coreceptor. Its functional importance is evident from the multiple levels and developmental stages of the regulation of its expression. We here report the discovery of a novel regulatory exon upstream of the noncoding region of the CD5 gene in humans. This alternate exon 1 is designated E1B (with the conventional exon 1 renamed E1A) and was shown to regulate the expression of CD5. E1B-containing transcripts existed exclusively in B lymphocytes and encoded a protein that was truncated and retained intracellularly. As a consequence, the amount of E1A-containing transcripts was down-regulated and the membrane CD5 expression was diminished in the presence of E1B-containing transcripts. High levels of E1A transcripts were found in chronic lymphocytic leukemia, and there were no E1A transcripts in 697 pre-B cells, which have no membrane CD5. Introduction of E1B into Jurkat cells reduced their membrane expression of CD5, and sequence analysis revealed that the E1B motif is a defective human endogenous retrovirus. A balance between the 2 alternative exons 1 might be central to the regulation of membrane CD5 in human B cells, and, through CD5-associated SH2-containing phosphatase 1, to the modulation of B-cell antigen receptor-transduced signals.