Murine embryonic stem (ES) cells represent a model system for studying certain aspects of hemopoiesis because they can differentiate in vitro into several cell types, including those of the hemopoietic system. We developed cell culture conditions in which ES cells undergo hemopoietic differentiation in a low-oxygen (5% O2) atmosphere without additional exogenous factors. After 15-20 days of culture under these conditions, cells bearing surface markers found on cells of the lymphoid lineage (Thy1+, Pgp-1+, c-kit+ and B-220+) were detected. After 13-15 days, transcripts for the recombinase activating genes (RAG) 1 and 2, interleukin (IL) 7, IL-7 receptor and c-kit were expressed. We also investigated rearrangements of the immunoglobulin (Ig) heavy and light chain and the T cell receptor (TCR) loci. After 15 days of differentiation, we detected DJH gene rearrangement with N-region diversity. Productive VHDJH rearrangements are found after 20 days, paralleled by V Kappa J Kappa recombinations indicating a developmental stage comparable, at least, with that of pre B cells. Rearrangements of TCR gamma as well as delta chain segments were also observed, but no TCR beta chain rearrangement. These results demonstrate that ES cells reproducibly generate lymphoid cells in vitro.