The coactivator-associated arginine methyltransferase, CARM1, is a positive regulator of transcription. Using high density protein arrays, we have previously identified in vitro substrates for CARM1. One of these substrates, TARPP (thymocyte cyclic AMP-regulated phosphoprotein), is expressed specifically in immature thymocytes. Here, we have demonstrated that TARPP is arginine-methylated at a single residue, Arg(650), both in vitro and in vivo. In addition, recombinant TARPP is not methylated by extracts from Carm1(-/-) cells, indicating that there is no redundancy in this pathway. We show that thymi from Carm1(-/-) embryos (E18.5) have a 5-10-fold reduction in cellularity compared with wild type littermates. Flow cytometric analysis of thymocytes revealed a decrease in the relative proportion of double negative thymocytes in Carm1(-/-) embryos because of a partial developmental arrest in the earliest thymocyte progenitor subset. These results demonstrate that CARM1 plays a significant role in promoting the differentiation of early thymocyte progenitors, possibly through its direct action on TARPP.