Inhibin and activin are structurally related dimeric peptide hormones and are members of the TGF-beta superfamily of proteins. In the accompanying paper, we describe transgenic mice that overexpress the inhibin alpha-subunit gene from a metallothionein-I promoter (MT-alpha) and examine the effects of the MT-alpha transgene on gonadotropin levels and fertility. To characterize the effects of increased inhibin alpha-subunit on gonadal morphology and function, in this report we investigate gonadal histology, steroid hormone levels, and the basis of ovarian cyst formation in MT-alpha transgenic mice. MT-alpha transgenic female mice develop large fluid-filled ovarian cysts of follicular origin as early as 3 months of age. By 12 months of age, more than 92% of female MT-alpha transgenic mice develop ovarian cysts compared with less than 25% of wild-type littermates. Ovarian cysts form unilaterally or bilaterally, and cystic ovaries often have a greatly expanded bursal sac. Additionally, the ovaries of MT-alpha transgenic mice contain polyovular follicles and have fewer mature antral follicles and corpora lutea. MT-alpha female mice exhibit abnormal steroid hormone production, with increased serum T levels and reductions in serum E with corresponding reductions in uterine mass. In the MT-alpha transgenic males, testis size was decreased by 20-40% compared with control males, and there is a corresponding reduction in seminiferous tubule volume. After a chronic treatment with a GnRH antagonist, MT-alpha female mice continued to develop ovarian cysts and bursal sac expansions, although the cysts were markedly reduced in size. These results indicate that the expression of the rat inhibin alpha-subunit in mice results in significant ovarian pathology, reduced testicular size, and altered ovarian steroidogenesis. The antagonist studies are consistent with a direct ovarian effect of the alpha-subunit transgene product mediated by changes in the inhibin-to-activin ratio in these mice.