Avian lymphoid cells transformed by reticuloendotheliosis virus (REV-T) serve as a model to analyze the mechanism by which B-cell differentiation and antibody diversification occur in birds. Immunoglobulin light-chain gene rearrangements, diversification, and expression were analyzed in 72 independently derived REV-T-transformed cell lines. Lymphoid cells transformed as the result of expression of the v-rel oncogene were divided into two distinct groups based on light-chain gene rearrangements. The status of the light-chain gene loci in these REV-T-transformed cell lines was determined in part by the ages of the chickens whose spleen cells were transformed. In embryonic spleen cell lines transformed by the v-rel oncogene, rearrangements were not detected, even after prolonged culture in vitro, indicating that these cells are arrested in B-cell differentiation. REV-T transformants derived from spleens obtained from chickens 2 weeks old or older, however, had at least one light-chain allele rearranged. All of the cell lines analyzed which exhibited rearranged light-chain genes contained light-chain transcripts, and most of the REV-T-transformed cells which displayed light-chain rearrangements expressed immunoglobulin protein. REV-T, therefore, transforms B-lymphoid cells at phenotypically different stages of development. Many REV-T-transformed cells undergo immunoglobulin chain gene rearrangements during prolonged propagation in vitro. Most of the cell lines which rearrange their light-chain alleles also undergo diversification during cultivation in vitro. Light-chain diversification occurs during or after the rearrangement event.