Normal pre-B cells from fetal liver or bone marrow of the mouse proliferate for long periods of time in tissue culture on stromal cells in the presence of interleukin-7 (IL-7). Their IgH loci are partly in germ-line, partly in DHJH-rearranged configuration, while their light chain loci are in germ-line configuration. They express the pre-B cell-specific genes VpreB and lambda 5. Proliferation of these pre-B cells is inhibited by interferon (IFN)-gamma, with half-maximal inhibition at concentrations between 0.1 and 1 unit/ml. Normal pre-B cells exposed to IFN-gamma die by apoptosis, as is evidenced by the disintegration of pre-B cell DNA into oligonucleosomal multimers of 180-200 bp. While the proliferation of pre-B cells from E mu-bcl-2 transgenic (tg) mice is inhibited by IFN-gamma, these cells do not die by apoptosis. IFN-gamma does not induce differentiation to more mature B lineage cells. In the absence of IL-7 normal pre-B cells differentiate to VHDHJH/VLJL-rearranged, surface immunoglobulin-positive B cells expressing the alpha chain of the IL-2 receptor. They also down-regulate the expression of VpreB and lambda 5, and lose the capacity to proliferate on stromal cells in the presence of IL-7. In contrast, both normal and E mu-bcl-2 tg pre-B cells exposed to IFN-gamma in the presence of stromal cells and IL-7 fail to differentiate, i.e. do not express surface immunoglobulin, retain expression of VpreB and lambda 5, do not express the alpha chain of the IL-2 receptor, and retain the capacity to proliferate on stromal cells in the presence of IL-7, once IFN-gamma is removed. The potential usefulness of a treatment of acute lymphocytic leukemia of the B cell lineage (pre B-ALL) with IFN-gamma is discussed.