Adult Leydig cells originate within the testis postnatally. Their formation is a continuous process involving gradual transformation of progenitors into the mature cell type. Despite the gradual nature of these changes, studies of proliferation, differentiation and steroidogenic function in the rat Leydig cell led to the recognition of three distinct developmental stages in the adult Leydig cell lineage: Leydig cell progenitors, immature Leydig cells and adult Leydig cells. In the first stage, Leydig cell progenitors arise from active proliferation of mesenchymal-like stem cells in the testicular interstitium during the third week of postnatal life and are recognizable by the presence of Leydig cell markers such as histochemical staining for 3 beta-hydroxysteroid dehydrogenase (3 beta-HSD) and the present of luteinizing hormone (LH) receptors. They proliferate actively and by day 28 postpartum differentiate into immature Leydig cells. In the second stage, immature Leydig cells are morphologically recognizable as Leydig cells. They have an abundant smooth endoplasmic reticulum and are steroidogenically active, but primarily produce 5 alpha-reduced androgens rather than testosterone. Immature Leydig cells divide only once, giving rise to the total adult Leydig cell population. In the third and final stage, adult Leydig cells are fully differentiated, primarily produce testosterone and rarely divide. LH and androgen act together to stimulate differentiation of Leydig cell progenitors into immature Leydig cells. Preliminary data indicate that insulin like growth factor-1 (IGF-1) acts subsequently in the transformation of immature Leydig cells into adult Leydig cells.