We have examined the regulatory role of the individual components of the immunoglobulin antigen receptor in B-cell development by transgenic complementation of Rag-1 deficient (Rag-1-) mice. Complementation with a membrane mu heavy chain (mu HC) gene allows progression of developmentally arrested Rag-1- pro-B-cells to the small pre-B cell stage, whereas the introduction of independently integrated mu HC and kappa light chain (kappa LC) transgenes promotes the appearance of peripheral lymphocytes which, however, remain unresponsive to external stimuli. Complete reconstitution of the B-cell lineage and the emergence of functionally nature Rag-1- peripheral B cells is achieved by the introduction of cointegrated heavy and light chain transgenes encoding an anti-H-2k antibody. This experimental system demonstrates the competence of the mu HC and kappa LC to direct and regulate the sequential stages of B-cell differentiation, defines the time at which negative selection of self-reactive B cells occurs, and shows that elimination of these cells occurs equally well in the absence of Rag-1 as in its presence. These data also support the hypothesis that Rag-1 directly participates in the V(D)J recombination process.