The avian bursa of Fabricius represents a site for the generation of antibody diversity. Transfer of neonatal bursal cells into cyclophosphamide-treated neonatal chickens results in reconstitution of recipient bursae with donor-derived bursal stem cells. These stem cells express cell surface IgM and, under conditions of limiting donor bursal stem cell numbers, each reconstituted bursal follicle is colonized by a single precursor cell. The expression of an Ig VH idiotype, CVH-1, was found to be heterogenous within such clonal follicles. The diversity generated within the bursa is subsequently found within the peripheral B cell compartment. Thus, the generation of functional Ig H chain diversity is shown to occur subsequent to Ig H chain rearrangement and expression.