Transgenic mice carrying mouse interleukin-7 (IL-7) cDNA under the control of MHC class II (E alpha) promoter develop B lymphoid tumors. We have analyzed population dynamics of early precursor B cells and electron microscopic organization of bone marrow (BM) during the prelymphomatous phase. Immunofluorescence labeling of terminal deoxynucleotidyl transferase (TdT), B220 glycoprotein, and mu heavy chains have been used to quantitate three populations of pro-B cells lacking mu chains, cytoplasmic mu-bearing pre-B cells, and surface mu-bearing B lymphocytes. Proliferative activity was assayed by metaphase arrest. In BM of IL-7 transgenic mice, the number and proliferative activity of cells in each of the pro-B and pre-B cell populations were markedly increased. B lymphocytes increased to a lesser extent. The BM cavity was considerably expanded and cortical bone showed focal osteolysis. Immature lymphoid cells compressed the venous sinusoids and exuded through eroded bone. Apoptotic bodies, macrophages, and plasma cells were unusually prominent. B lymphocytes and cells of B precursor phenotype were also much increased in the spleen. These results demonstrate that overexpression of IL-7 causes excessive proliferation of a wide range of precursor B cells in BM. Such prolonged stimulation at early stages of B cell development, prone to genetic errors, may predispose to neoplasia. The bone resorption in these transgenic mice provides a model for bone lesions in BM malignancies.