Transgenic mice carrying the murine IL-7 gene under the MHC class II (E alpha) promoter are described which develop lymphoid tumours at a high incidence when maintained in conventional or specific pathogen-free environments. Cells obtained from the lesions were relatively monomorphic, expressed a variety of B cell associated markers (BP-1, B220, CD43) but lacked surface Ig. Some mice, showed expanded populations of cells phenotypically similar to the recently reported bipotent B/macrophage stem cell subset (AA4.1high, B220-, Ig-) which could be cloned and maintained in vitro. These cells expressed IL-7 receptors, proliferated in response to IL-7 and in most cases had germline configuration of the Ig heavy chain locus. Cell lines cloned from two such tumours generated macrophages spontaneously in culture, consistent with their bipotent B cell/macrophage phenotype. These results suggest that IL-7 plays a role in very early stages of B cell ontogeny prior to bona fide B cell commitment.