The developmental control genes of the Pax family are frequently associated with mouse mutants and human disease syndromes. The function of these transcription factors is sensitive to gene dosage, as mutation of one allele or a modest increase in gene number results in phenotypic abnormalities. Pax5 has an important role in B-cell and midbrain development. By following the expression of individual Pax5 alleles at the single-cell level, we demonstrate here that Pax5 is subject to allele-specific regulation during B-lymphopoiesis. Pax5 is predominantly transcribed from only one allele in early progenitors and mature B cells, whereas it switches to a biallelic transcription mode in immature B cells. The allele-specific regulation of Pax5 is stochastic, reversible, independent of parental origin and correlates with synchronous replication, in contrast with imprinted and other monoallelically expressed genes. As a consequence, B-lymphoid tissues are mosaics with respect to the transcribed Pax5 allele, and thus mutation of one allele in heterozygous mice results in deletion of the cell population expressing the mutant allele due to loss of Pax5 function at the single-cell level. Similar allele-specific regulation may be a common mechanism causing the haploinsufficiency and frequent association of other Pax genes with human disease.