The Ikaros gene is essential for lymphoid lineage specification. As previously reported, mice homozygous for a mutation in the Ikaros DNA-binding domain fail to generate mature lymphocytes as well as their earliest described progenitors. In addition, our studies with mice heterozygous for this mutation establish the Ikaros gene as an essential regulator of T cell proliferation. Thymocytes display augmented TCR-mediated proliferative responses, and peripheral T cells are autoproliferative. A general lymphoproliferation precedes the T cell leukemia and lymphoma that rapidly develop in all heterozygotes. The first step toward leukemic transformation occurs within the maturing thymocyte population and is demarcated by clonal expansions and loss of the single Ikaros wild-type allele. From these studies, we propose that within developing and mature T lymphocytes, distinct thresholds of Ikaros activity are required to regulate proliferation. A decrease in Ikaros activity below the first threshold causes the rapid accumulation of T lymphoblasts, whereas a further decrease leads to neoplastic transformation.