To investigate the role of Müllerian-inhibiting substance (MIS) in mammalian sexual development, we generated MIS-deficient mice. Although MIS-deficient males had testes that were fully descended and produced functional sperm, they also developed female reproductive organs, which interfered with sperm transfer into females, rendering most of these males infertile. Their testes had Leydig cell hyperplasia and, in one instance, neoplasia. The actions of the two primary hormones of male sexual differentiation were genetically eliminated using the testicular feminization (Tfm) mutation in combination with the MIS mutant allele. XY Tfm/MIS double mutants developed as females, with a uterus, coiled oviducts, and no male reproductive organs except undescended dysfunctional testes. These results suggest that eliminating the presumptive female reproductive tract in male fetuses facilitates fertility and that in testes MIS is a negative regulator of Leydig cell proliferation. Eliminating the presumptive male reproductive tract is necessary for proper oviductal morphogenesis during female mouse development.