The early stages of hematopoiesis have been difficult to study due to problems in obtaining homogeneous populations of progenitor cells that retain both self-renewal and differentiative capacities. We have developed an in vitro system in which transformation of murine bone-marrow cells with the BCR/ABL oncogene, a gene associated with stem-cell leukemias, leads to the outgrowth of clonal lines that have an early lymphoid progenitor cell phenotype. The progenitor cells retain immunoglobulin heavy and light chain genes in a germ-line configuration. These cells give rise in vitro to pre-B cells that have diverse diversity-joining (D-J) region rearrangements, and on transfer to mice with severe combined immune deficiency, differentiate to surface IgM+, immunoglobulin-secreting B cells that respond to T-cell help and function in an antigen-specific fashion. Although their growth is stimulated by BCR/ABL, the progenitor cells depend for continued growth on a stromal cell-derived soluble factor distinct from the pre-B-cell growth factor, interleukin 7. These findings show that BCR/ABL can promote proliferation of an early hematopoietic progenitor cell without preventing its differentiation. This system provides a means of studying the complete B-cell developmental process from clonal progenitor cell to end-stage plasma cell.