XBP‐1, a transcription factor that drives the unfolded protein response (UPR), is activated in B cells when they differentiate to plasma cells. Here, we show that in the B cells, whose capacity to secrete IgM has been eliminated, XBP‐1 is induced normally on induction of differentiation, suggesting that activation of XBP‐1 in B cells is a differentiation‐dependent event, but not the result of a UPR caused by the abundant synthesis of secreted IgM. Without XBP‐1, B cells fail to signal effectively through the B‐cell receptor. The signalling defects lead to aberrant expression of the plasma cell transcription factors IRF4 and Blimp‐1, and altered levels of activation‐induced cytidine deaminase and sphingosine‐1‐phosphate receptor. Using XBP‐1‐deficient/Blimp‐1‐GFP transgenic mice, we find that XBP‐1‐deficient B cells form antibody‐secreting plasmablasts in response to initial immunization; however, these plasmablasts respond ineffectively to CXCL12. They fail to colonize the bone marrow and do not sustain antibody production. These findings define the role of XBP‐1 in normal plasma cell development and have implications for management of B‐cell malignancies.