T cell differentiation in the thymus depends on sequential interactions between lymphoid progenitors and stromal cells in discrete regions of the cortex. Here we show that CXCL12/CXCR4 signaling is absolutely required for proper localization of early progenitors into the cortex and thus for successful steady state differentiation. All early progenitors in the thymus express CXCR4, and its ligand (CXCL12) is expressed only by stromal cells in the cortex, where early progenitors are found. Early progenitors migrate in response to CXCL12 in vitro, while thymus-specific deletion of CXCR4 in vivo results in failed cortical localization and developmental arrest. These findings indicate a crucial and nonredundant role for CXCR4 in facilitating localization of early lymphoid progenitors to tissue regions of the thymus, where lineage commitment and proliferation are controlled.