To investigate the role of interleukin 7 (IL-7) in the development of the lymphoid system, we have generated two lines of transgenic mice carrying an IL-7 cDNA fused to an immunoglobulin heavy chain promoter and enhancer. This transgene is expressed in the bone marrow, lymph nodes, spleen, thymus, and skin provoking a perturbation of T cell development characterized by a marked reduction of CD4+ CD8+ (double-positive) thymocytes. Quite unexpectedly, however, both lines also develop a progressive cutaneous disorder involving a dermal lymphoid infiltrate that results in progressive alopecia, hyperkeratosis, and exfoliation. Although the infiltrate is primarily composed of T lineage cells, its development is not impeded in the athymic nu/nu background. Furthermore, the phenotype can be transmitted horizontally by transplanting lymphoid tissues or skin to syngeneic wild-type mice. Thus, the phenotype is conveyed by skin-homing, mobile cells (presumably the infiltrating lymphocytes) in a cell-autonomous fashion. In addition to the skin phenotype, this transgene also provokes the development of a lymphoproliferative disorder that induces B and T cell lymphomas within the first 4 mo of life. These findings suggest potential physiologic actions of IL-7 in T cell development and in cutaneous immunity. They also demonstrate that IL-7 can act as an oncogene in the living organism.