During normal development there is a perinatal sensitive period during which the male brain is exposed to high levels of gonadal steroids, resulting in permanent differentiation of neural substrates. The cellular mechanisms mediating hormonally induced sexual differentiation remain largely unknown. In the adult brain, steroids exert profound influences on the amino acid transmitters, GABA, and glutamate. We have found steroid regulation of amino acid neurotransmission during the perinatal sensitive period and propose this may be functionally related to sexual differentiation of the brain. Specifically, the mRNA coding for the rate-limiting enzyme in GABA synthesis, glutamic acid decarboxylase (GAD), is up to twice as high in some steroid-concentrating regions of the neonatal male brain compared to females, including the arcuate nucleus, dorsomedial nucleus, and the CA1 region of hippocampus. Sex differences in GABA tissue concentrations positively correlate with GAD mRNA differences in several brain regions. There are also sex differences in protein levels of GABA(A) receptor subunits. In parallel with these findings are significantly higher levels of binding to the non-NMDA glutamate receptor in steroid-concentrating regions of male brain. Given that GABA is an inhibitory transmitter and glutamate is an excitatory amino acid, these results initially appear paradoxical. However, in contrast to its inhibitory action in the adult brain, early in development GABA is actually excitatory and acts in a manner analogous to glutamate. Therefore, the combination of increased excitatory GABAergic and glutamatergic activity should result in substantially higher levels of neuronal excitation in the male brain. We speculate that an increased level of neuronal excitation is a potential mechanism mediating the permanent masculinization of the brain.