Although in vivo evidence supports a role for the murine intestinal epithelium in the extrathymic generation of certain intraepithelial T lymphocytes (IEL), no intraepithelial cells with in vitro lymphoid progenitor potential have yet been demonstrated. Using reaggregate fetal thymic organ culture techniques, we show that a subset of CD3(-) cells isolated from the intestinal epithelium of young mice is capable of generating T cells (alpha beta and gamma delta) and NK1.1(+) cells in vitro. A novel IEL subset bearing a low level of CD45 was identified and found to comprise cells expressing highly immature lymphoid markers including CD34, c-kit, CD122, CD127 and high levels of CD16 and CD44. This subset represents 20-30% of intraepithelial CD45(+) cells from 4-week-old wild-type and nude mouse strains and contains cells with in vitro T cell differentiation capacity. The identification of such an early pluripotent precursor phenotype within the intestinal epithelium implies that the potential for T cell generation exists at this site, and suggests that extrathymic T cell generation may occur within the epithelium itself.