The molecular mechanisms regulating lymphocyte lineage commitment remain poorly characterized. To explore the role of the IL7R in this process, we generated transgenic mice that express a constitutively active form of STAT5 (STAT5b-CA), a key downstream IL7R effector, throughout lymphocyte development. STAT5b-CA mice exhibit a 40-fold increase in pro-B cells in the thymus. As documented by BrdU labeling studies, this increase is not due to enhanced B cell proliferation. Thymic pro-B cells in STAT5b-CA mice show a modest increase in cell survival (∼4-fold), which correlates with bcl-xL expression. However, bcl-xL transgenic mice do not show increases in thymic B cell numbers. Thus, STAT5-dependent bcl-xL up-regulation and enhanced B cell survival are not sufficient to drive the thymic B cell development observed in STAT5b-CA mice. Importantly, thymic pro-B cells in STAT5b-CA mice are derived from early T cell progenitors (ETPs), suggesting that STATS acts by altering ETP lineage commitment. Supporting this hypothesis, STATS binds to the pax5 promoter in ETPs from STAT5b-CA mice and induces pax5, a master regulator of B cell development. Conversely, STAT5b-CA mice exhibit a decrease in the DN1b subset of ETPs, demonstrating that STAT5 activation inhibits early T cell differentiation or lineage commitment. On the basis of these findings, we propose that the observed expression of the IL-7R on common lymphoid progenitors, but not ETPs, results in differential STAT5 signaling within these distinct progenitor populations and thus helps ensure appropriate development of B cells and T cells in the bone marrow and thymic environments, respectively.