To study molecular events involved in B lymphocyte development and V(D)J rearrangement, we have established an efficient system for the differentiation of embryonic stem (ES) cells into mature Ig-secreting B lymphocytes. Here, we show that B lineage cells generated in vitro from ES cells are functionally analogous to normal fetal liver-derived or bone marrow-derived B lineage cells at three important developmental stages: first, they respond to Flt-3 ligand during an early lymphopoietic progenitor stage; second, they become targets for Abelson murine leukemia virus (A-MuLV) infection at a pre-B cell stage; third, they secrete Ig upon stimulation with lipopolysaccharide at a mature mitogen-responsive stage. Moreover, the ES cell-derived A-MuLV-transformed pre-B (EAB) cells are phenotypically and functionally indistinguishable from standard A-MuLV-transformed pre-B cells derived from infection of mouse fetal liver or bone marrow. Notably, EAB cells possess functional V(D)J recombinase activity. In particular, the generation of A-MuLV transformants from ES cells will provide an advantageous system to investigate genetic modifications that will help to elucidate molecular mechanisms in V(D)J recombination and in A-MuLV-mediated transformation.