Allelic exclusion of immunoglobulin genes ensures the expression of a single antibody molecule in B cells through mostly unknown mechanisms. Large-scale contraction of the immunoglobulin heavy-chain (Igh) locus facilitates rearrangements between Igh variable (V(H)) and diversity gene segments in pro-B cells. Here we show that these long-range interactions are mediated by 'looping' of individual Igh subdomains. The Igk locus also underwent contraction by looping in small pre-B and immature B cells, demonstrating that immunoglobulin loci are in a contracted state in rearranging cells. Successful Igh recombination induced the rapid reversal of locus contraction in response to pre-B cell receptor signaling, which physically separated the distal V(H) genes from the proximal Igh domain, thus preventing further rearrangements. In the absence of locus contraction, only the four most proximal V(H) genes escaped allelic exclusion in immature mu-transgenic B lymphocytes. Pre-B cell receptor signaling also led to rapid repositioning of one Igh allele to repressive centromeric domains in response to downregulation of interleukin 7 signaling. These data link both locus 'decontraction' and centromeric recruitment to the establishment of allelic exclusion at the Igh locus.