Despite extensive research, the role of CD40 signaling in B cell terminal differentiation remains controversial. Here we show that CD40 engagement arrests B cell differentiation prior to plasma cell formation. This arrest is manifested at a molecular level as a reduction in mRNA levels of secretory immunoglobulin gene products such as mu(s) and J chain as well as the loss of the transcriptional regulator BLIMP-1. Furthermore, the inhibition of B cell differentiation by CD40 engagement could not be overcome by either mitogens or cytokines, but could be reversed by antibodies that interfere with the CD40/gp39 interaction. These data suggest that secretory immunoglobulin is not produced by B cells that are actively engaged by gp39-expressing T cells.