We induced differentiation of mouse embryonic stem (ES) cells into lymphold cells by culturing in methylcellulose, followed by the co-culture with a bone marrow stromal cell line ST2 In the presence of IL-7. These lymphold cells expressed transcripts of the recombination activating genes, RAG-1 and RAG-2, as well as the Cμ gene, although the lymphoid cells did not express surface antigens specific to T or B lymphocytes such as T200, CD4, CD8 and B220, or transcripts of B lymphocyte-specific genes such as λ5 and mb-1. D- J rearrangement was detectable in the lymphold cells differentiated from ES cells In vitro and a sizeable number of both B and T lymphocytes were generated In vivo when the ES-derlved lymphold cells were transferred into RAG-2-deflclent mice, which contain no B or T lymphocytes. The results indicate that in the In vitro co-culture system, ES cells give rise to immature lymphocyte precursors which have potentials to differentiate into both mature B and T lymphocytes in vivo. The ES-derlved lineage marker-negative lymphocyte precursors would thus provide useful materials for studying early events of lymphopoiesis.