Organizations increasingly use cross-functional project teams to develop new products, to solve the problems across functional areas, to invent innovative ideas, and so on. The foremost advantage of using cross-functional teams is that the relevant experiences, knowledge and expertise are brought together into the task. Moreover, team decisions and actions are more likely to encompass the full range of perspectives and issues that might be critical to team effectiveness. Utilizing cross-functional project teams is an attractive organizing option, particularly in solving complex and innovative problems that require diverse sources of information, knowledge, and expertise brought by individuals from different functional backgrounds. We know yet little about how such teams form, perform and excel. Group dynamics surrounding and inside the teams are to be examined to better understand what makes these teams effective. Studies on group dynamics of teams have mostly focused on within-group processes, such as communication, collaboration and integration among the members joined from various functional areas. Some emerging literature suggests that the processes that make teams perform and excel are richer and more complex than traditionally expected. In order to capture the processes leading to the excellence of cross-functional project teams, we adopted the team development time as a critical variable which mediates the effects of various antecedents on team effectiveness. The team development time is defined as the amount of time cross-functional project teams spend to become mature in terms of interactions and other group processes. Team diversity and organizational context characteristics are adopted as antecedent factors that lead to team effectiveness. Hypotheses are proposed concerning how the length of team development time affects team effectiveness defined as team performance and team member learning. The effects of team diversity are hypothesized as those of job-related diversity and social category diversity separately on team development time as well as team effectiveness. Also hypothesized are the effects of such contextual factors as authority independence, the evaluation and reward for team performance, and autonomous control on team effectiveness. Data from 89 cross-functional project teams consisting of 511 individual respondents are analyzed through structural equation modeling for hypotheses testing. We found strong evidence that the teams of short team development time are more likely to achieve high levels of team performance and team member learning. Results also show that job-related diversity is positively related to the length of the team development time and both of the team effectiveness variables as well. Authority independence is related positively to team performance and negatively on the length of team development time. The linkage of reward and evaluation to team performance contributes significantly to shortening the team development time, but not significantly to any of team effectiveness variables directly. The degree of autonomous control is related positively to both team performance and learning, and negatively on the length of the team development time. Our study highlights the importance of the team development time to achieve exceptional team performance and learning in organizing cross-functional project teams. Further, our results indicate that such structural factors as diversity and contextual factors of organizations exert significant influence on the effective functioning of cross-functional project teams. Future research needs to find more factors that might influence the team development time as well as team effectiveness.