Development of the lymphoid system is dependent on the activity of zinc finger transcription factors encoded by the Ikaros gene. Differences between the phenotypes resulting from a dominant-negative and a null mutation in this gene suggest that Ikaros proteins act in concert with another factor with which they form heterodimers. Here we report the cloning of Aiolos, a gene which encodes an Ikaros homologue that heterodimerizes with Ikaros proteins. In contrast to Ikaros--which is expressed from the pluripotent stem cell to the mature lymphocyte--Aiolos is first detected in more committed progenitors with a lymphoid potential and is strongly up-regulated as these differentiate into pre-T and pre-B cell precursors. The expression patterns of Aiolos and Ikaros, the relative transcriptional activity of their homo- and heteromeric complexes, and the dominant interfering effect of mutant Ikaros isoforms on Aiolos activity all strongly suggest that Aiolos acts in concert with Ikaros during lymphocyte development. We therefore propose that increasing levels of Ikaros and Aiolos homo- and heteromeric complexes in differentiating lymphocytes are essential for normal progression to a mature and immunocompetent state.