Using transgenic mice that express a constitutively active version of STAT5b, we demonstrate that STAT5 plays a key role in governing B cell development and T cell homeostasis. STAT5 activation leads to a 10-fold increase in pro-B, but not pro-T, cells. Conversely, STAT5 signaling promotes the expansion of mature alphabeta T cells (6-fold increase) and gammadelta and NK T cells (3- to 4-fold increase), but not of mature B cells. In addition, STAT5 activation has dramatically divergent effects on CD8(+) vs CD4(+) T cells, leading to the selective expansion of CD8(+) memory-like T cells and CD4(+)CD25(+) regulatory T cells. These results establish that activation of STAT5 is the primary mechanism underlying both IL-7/IL-15-dependent homeostatic proliferation of naive and memory CD8(+) T cells and IL-2-dependent development of CD4(+)CD25(+) regulatory T cells.