Signaling downstream of the IL7 receptor plays important physiological and pathological roles, including differentiation of lymphoid cells and proliferation of acute lymphoblastic leukemia cells. Gain of function mutations in the IL7Rα chain, the specific component of the receptor for IL7, result in constitutive, IL7-independent signaling and trigger acute lymphoblastic leukemia. Here, we show that loss of the phosphoinositide 5-phosphatase INPP5K is associated with increased levels of the INPP5K substrate PtdIns(4,5)P2 and causes altered dynamic structure of the IL7 receptor. We discovered that the IL7Rα chain contains a very conserved positively-charged polybasic amino acid sequence in its cytoplasmic juxtamembrane region; this region establishes stronger ionic interactions with negatively-charged PtdIns(4,5)P2 in the absence of INPP5K, freezing IL7Rα chain structure. This dynamic structural alteration causes defects in IL7 receptor signaling, culminating in decreased expression of EBF1 and PAX5 transcription factor, in microdomain formation, cytoskeletal reorganization and bone marrow B cell differentiation. Similar alterations following reduced INPP5K expression also impacted mutated, constitutively activated IL7Rα chains that trigger leukemia development, leading to reduced cell proliferation. Altogether, our results indicate that the lipid 5-phosphatase INPP5K hydrolyses plasma membrane PtdIns(4,5)P2, allowing the requisite conformational changes of the IL7Rα chain for optimal signaling.