Small ubiquitin-like modifier (SUMO) modification has emerged as an important regulatory mechanism during embryonic development. However, it is not known whether SUMOylation plays a role in the development of the immune system. Here, we show that SUMO-specific protease 1 (SENP1) is essential for the development of early T and B cells. STAT5, a key regulator of lymphoid development, is modified by SUMO-2 and is specifically regulated by SENP1. In the absence of SENP1, SUMO-2 modified STAT5 accumulates in early lymphoid precursors, resulting in a block in its acetylation and subsequent signaling. These results demonstrate a crucial role of SENP1 in the regulation of STAT5 activation during early lymphoid development.