The Steel (Sl) locus is essential for the development of germ cells, hematopoietic cells, and melanocytes and encodes a growth factor (Mgf) that is the ligand for c-kit, a receptor tyrosine kinase encoded by the W locus. We have identified the molecular and germ cell defects in two mutant Sl alleles, Steel-panda (Slpan) and Steel-contrasted (Slcon), that cause sterility only in females. Unexpectedly, both mutant alleles are shown to contain DNA rearrangements, located > 100 kb 5' of Mgf-coding sequences, that lead to tissue-specific effects on Mgf mRNA expression. In Slpan embryos, decreased Mgf mRNA expression in the gonads causes a reduced number of primordial germ cells in both sexes. However, Mgf expression and spermatogenesis in the postnatal mutant tests is normal, and spermatogonial proliferation compensates for deficiencies in germ cell numbers. In Slpan and Slcon homozygous females, decreased Mgf mRNA expression causes sterility by affecting the initiation and maintenance of ovarian follicle development. Thus, regulated expression of Mgf is required for multiple stages of embryonic and postnatal germ cell development. Surprisingly, other areas of the Slcon female reproductive tract displayed ectopic expression of Mgf mRNA. We propose that the Slpan and Slcon rearrangements alter Mgf mRNA abundance through position effects on expression that act at a distance from the Sl gene.