The rearrangement of Ig genes is known to be regulated by the production of H and kappa L chains. To determine whether lambda L chains have a similar effect, transgenic mice were produced with a lambda 2 gene. It was necessary to include the H chain enhancer, since a lambda gene without the added enhancer did not result in transgene expression. The lambda 2 transgene with the H enhancer was expressed in lymphoid cells only. The majority of the B cells of newborn transgenic mice produced lambda, whereas kappa + cells were reduced. Concomitantly, serum levels of kappa and kappa mRNA were diminished. By 2 wk after birth the proportion of kappa-expressing cells was dramatically increased. Adults had reduced proportions of B cells that produced lambda only, but the levels of lambda were still higher than in normal littermates. Also, kappa + cells were still lower than in normal mice. Analysis of hybridomas revealed that reduction of kappa gene rearrangement was the basis for the decreased frequency of kappa + cells. Furthermore, many cells also contained an unrearranged H chain allele. It was concluded that feedback inhibition by the lambda 2 together with endogenous H protein may have inhibited recombinase activity in early pre-B cells, leading to inhibition of both H chain and kappa gene rearrangement. Thus, lambda 2 can replace kappa in a feedback complex. The levels of serum lambda 1 and, to a lesser degree, of spleen lambda 1 mRNA were reduced in the lambda 2 transgenic mice. However, the proportion of hybridomas with endogenous lambda gene rearrangement was at least as high as in normal mice. It was therefore concluded that the suppression of functional lambda 1 may be a consequence of decreased selection of endogenous lambda-producing cells because of the excess of transgenic lambda. The escape of kappa-producing cells from feedback inhibition may be the result of several mechanisms that operate to varying degrees, among them: (a) kappa rearrangement during a period in which the recombinase is still active after appearance of a lambda 2/mu stop signal; (b) a B cell lineage that is not feedback inhibited at the pre-B cell stage; (c) subthreshold levels of transgenic lambda 2 in some pre-B cells; and (d) loss of the lambda 2 transgenes in rare pre-B cells.