Sex-differentiation in mammals initiates at mid-gestation when the differentiation of Sertoli cells is triggered by the expression of the testis-determining gene, Sry. However, little is known about the succeeding germ-soma interaction that directs the sex-differentiation of germ cells. We carried out subtraction and differential screening between male and female gonads at 13.5 dpc (days post coitum). A novel cystatin-related gene was identified and named cresp (cystatin-related expressed in Sertoli and spermatogonia), and has recently been reported independently under the name testatin (Töhönen et al., 1998). The presumed amino acid sequence of testatin/cresp showed considerable homology to the cystatin family, but it lacked a few critical amino acid residues for the cysteine-protease inhibitory activity. A 0.7 kb RNA was detected by northern blotting specifically in the fetal and adult testes from 11.5 dpc and expression increased between 11.5 dpc and 12.5 dpc. Using RT-PCR analysis, the testatin/cresp mRNA was first detectable at 9.5 dpc in both male and female embryos but it was maintained only in the male. In females, the expression became weaker at 11.5 dpc and was undetectable after 12.0 dpc. In situ hybridization and immunohistochemical analyses, as well as single cell RT-PCR analysis, showed that the testatin/cresp mRNA was localized specifically in both the (pro)spermatogonia and Sertoli cells in the testis from 12.5 dpc to adult. Thus, expression of the testatin/cresp gene is upregulated in male gonads but downregulated in females immediately after the initiation of sex-differentiation, suggesting roles in the early developmental cascade of testis such as the germ-soma interaction.