The production of distinct sets of T cell receptor (TCR) gammadelta(+) T cells occurs in an ordered fashion in thymic development. The Vgamma3 and Vgamma4 genes, located downstream in the TCRgamma Cgamma1 gene cluster, are expressed by the earliest waves of developing TCRgammadelta(+) T cells in the fetal thymus, destined for intraepithelial locations. Upstream Vgamma2 and Vgamma5 genes are expressed in later waves in the adult and constitute most TCRgammadelta(+) T cells in secondary lymphoid tissue. This developmental pattern is caused in part by a preference for rearrangements of the downstream Vgamma3 and Vgamma4 genes in the early fetal stage, which switches to a preference for rearrangements of the upstream Vgamma2 and Vgamma5 gene rearrangements in the adult. Our gene targeting studies show that the downstream Vgamma genes rearrange preferentially in the early fetal thymus because of their downstream location, independent of promoter or recombination signal sequences and unrelated to the extent of germline transcription. Remarkably, gene deletion studies show that the downstream Vgamma genes competitively inhibit upstream Vgamma rearrangements at the fetal stage. These data provide a mechanism for specialization of the fetal thymus for the production of T cells expressing specific Vgamma genes.