Although expression of the RAG1 and RAG2 genes is essential for lymphocyte development, the mechanisms responsible for the lymphoid- and developmental stage-specific regulation of these genes are poorly understood. We have identified a novel, evolutionarily conserved transcriptional enhancer in the RAG locus, called Erag, which was essential for the expression of a chromosomal reporter gene driven by either RAG promoter. Targeted deletion of Erag in the mouse germline results in a partial block in B cell development associated with deficient V(D)J recombination, whereas T cell development appears unaffected. We found that E2A transcription factors bind to Erag in vivo and can transactivate Erag-dependent reporter constructs in cotransfected cell lines. These findings lead us to conclude that RAG transcription is regulated by distinct elements in developing B and T cells and that Erag is required for optimal levels of RAG expression in early B cell precursors but not in T cells.