During derivation of transgenic mouse strains with various TL and TL/H-2 chimeric genes, one strain, Tg.Tlaa-3-1, introduced with a TL gene (Tlaa-3), was found to have an abnormal thymic T cell population and to develop a high incidence of T cell lymphomas. To investigate the etiology of the thymic abnormalities and of the lymphomas, the development of lymphoid organs in transgenic mice was studied. The thymus of these mice goes through three unusual successive events: perturbation of thymic development during embryogenesis, disappearance of thymocytes between day 14 and day 21 after birth, and subsequent proliferation of large blast-like cells. These events are associated with the abolishment of T cell receptor (TCR) alpha beta lineage of the T cell differentiation, leading to preponderance of cells belonging to the TCR gamma delta L3T4-Lyt-2- double negative (DN) lineage. Bone marrow transplantation and thymic graft experiments demonstrate that the abnormality resides in the bone marrow stem cells rather than in the thymic environment. The expression of TL antigen in the transgenic mice is greatly increased and TL is expressed in a wide range of T cells, including normally TL- DN cells and L3T4+ Lyt-2- and L3T4-Lyt-2+ single positive cells. These quantitative and qualitative abnormalities in TL expression most likely cause the abnormal T cell differentiation. The gamma delta DN cells migrate into peripheral lymphoid organs and constitute nearly 50% of peripheral T cells. Immune function of the transgenic mice is severely impaired, as T cell function is defective in antibody production to sheep red blood cells, in mixed lymphocyte culture reaction to allogenic spleen cells and also in stimulation with concanavalin A. These results indicate that the gamma delta cells are incapable of participating in these reactions. Molecular and serological analysis of T cell lymphomas reveal that they belong to the gamma delta lineage, suggesting that the gamma delta DN cells in this strain are susceptible to leukemic transformation. Based on cell surface phenotype and TCR expression of the DN thymocytes and T cell lymphomas, a map of the sequential steps involved in the differentiation of gamma delta DN cells is proposed.(ABSTRACT TRUNCATED AT 400 WORDS)