Steroids play a critical role in gonadal differentiation in birds, reptiles, and amphibia whereas gonadal differentiation in mammals is thought to be determined by genetic mechanisms. The gonads of female mice incapable of synthesizing estrogens due to disruption of the aromatase gene (ArKO) provide a unique model to test the role of estrogen in regulating the gonadal phenotype. We have shown that in the absence of estrogen, genetically female mice develop testicular tissue within their ovaries. The ovaries develop cells that possess structural and functional characteristics of testicular interstitial cells and of seminiferous tubule-like structures lined with Sertoli cells. Moreover, the ovaries express mRNA for the testis-specific Sertoli cell transcription factor Sox 9 and espin protein, which is specific for inter-Sertoli cell junctions. The development of the testicular tissue in this model can be reverted/postponed by replacing estrogen. When ArKO female mice were fed a diet containing phytoestrogens, the appearance of Leydig and Sertoli cells was postponed and reduced. Furthermore, administration of estradiol-17beta decreased the number of Sertoli and Leydig cells in the ovaries. These findings constitute definitive evidence that estrogen plays a critical role in maintaining female somatic interstitial and granulosa cells in the eutherian ovary.