Leydig cells develop inappropriately in animals lacking testicular macrophages. We have recently found that macrophages from adult animals produce 25-hydroxycholesterol, an oxysterol involved in the differentiation of hepatocytes and keratinocytes. Therefore, we hypothesized that testicular macrophages also produce 25-hydroxycholesterol during the early postnatal period and that this oxysterol plays a role in the differentiation of Leydig cells. We assessed the production of 25-hydroxycholesterol and 25-hydroxylase mRNA by cultured testicular macrophages from rats at 10, 20, and 40 days of age. We also tested the long-term effects of 25-hydroxycholesterol on basal and LH-stimulated testosterone production, and 3beta-hydroxysteroid dehydrogenase activity as end points of Leydig cell differentiation in vitro. We found that testicular macrophages from animals at all ages produced both 25-hydroxycholesterol and 25-hydroxylase mRNA, with macrophages from 10-day-old animals having the highest steady-state levels of message. We also found that chronic exposure of Leydig cells to 25-hydroxycholesterol increased basal production of testosterone but decreased LH-stimulated steroidogenesis at all ages. Finally, 25-hydroxycholesterol increased 3beta-hydroxysteroid dehydrogenase activity in both progenitor and immature Leydig cells. These findings support the hypothesis that testicular macrophages play an important role in the differentiation of Leydig cells through the secretion of 25-hydroxycholesterol.