Bruton's tyrosine kinase (Btk) is a cytoplasmic protein kinase that is defective in X-linked agammaglobulinaemia in man and in X-linked immunodeficiency in the mouse. There is controversy regarding the stages of B cell development that are dependent on Btk function. To determine the point in B cell differentiation at which defects in Btk become apparent, we generated a mouse model by inactivating the Btk gene through an in-frame insertion of a lacZ reporter by homologous recombination in embryonic stem cells. The phenomenon of X-chromosome inactivation in Btk+/- heterozygous female mice enabled us to evaluate the competition between B cell progenitors expressing wild-type Btk and those expressing the Btk-/lacZ allele in each successive step of development. Although Btk was already expressed in pro-B cells, the first selective disadvantage only became apparent at the transition from small pre-B cells to immature B cells in the bone marrow. A second differentiation arrest was found during the maturation from IgD(low)IgM(high) to IgD(high)IgM(low) stages in the periphery. Our results show that Btk expression is essential at two distinct differentiation steps, both past the pre-B cell stage.