Development of the male urogenital tract in mammals is mediated by testicular androgens. It has been tacitly assumed that testosterone acts through its intracellular metabolite dihydrotestosterone (DHT) to mediate this process, but levels of these androgens are not sexually dimorphic in plasma at the time of prostate development. Here we show that the 3 alpha-reduced derivative of DHT, 5 alpha-androstane-3 alpha,17 beta-diol (5 alpha-adiol), is formed in testes of tammar wallaby pouch young and is higher in male than in female plasma in this species during early sexual differentiation. Administration of 5 alpha-adiol caused formation of prostatic buds in female wallaby pouch young, and in tissue minces of urogenital sinus and urogenital tubercle radioactive 5 alpha-adiol was converted to DHT, suggesting that circulating 5 alpha-adiol acts through DHT in target tissues. We conclude that circulating 5 alpha-adiol is a key hormone in male development.