Generation of chimeric antigen receptor (CAR) T cells from pluripotent stem cells (PSCs) will enable advances in cancer immunotherapy. Understanding how CARs affect T cell differentiation from PSCs is important for this effort. The recently described artificial thymic organoid (ATO) system supports in vitro differentiation of PSCs to T cells. Unexpectedly, PSCs transduced with a CD19-targeted CAR resulted in diversion of T cell differentiation to the innate lymphoid cell 2 (ILC2) lineage in ATOs. T cells and ILC2s are closely related lymphoid lineages with shared developmental and transcriptional programs. Mechanistically, we show that antigen-independent CAR signaling during lymphoid development enriched for ILC2-primed precursors at the expense of T cell precursors. We applied this understanding to modulate CAR signaling strength through expression level, structure, and presentation of cognate antigen to demonstrate that the T cell-versus-ILC lineage decision can be rationally controlled in either direction, providing a framework for achieving CAR-T cell development from PSCs. Keywords: CP: Immunology; CP: Stem cell research; T cell development; adoptive cell therapy; cancer immunotherapy; chimeric antigen receptor; innate lymphoid cells; pluripotent stem cells.