In many songbirds, females occasionally sing in contexts of high female-female competition. Testosterone may be involved in the activation of song, because testosterone implants elicit female song in many species with rare female song. A possible mechanism for the hormonal control of female song is provided by the challenge hypothesis, which predicts a rise in testosterone in response to aggressive interactions during socially unstable situations. We tested this by comparing faecal testosterone levels in polygynandrous and monogamous female dunnocks. In groups with two to three females (polygynandry and polygyny) males provide less help at each nest than in groups with a single female (monogamy and polyandry). Polygynandrous and polygynous females are aggressive towards one another and attempt to expel rivals. Polygynandrous females had significantly higher testosterone levels than monogamous females. Competition between females that was induced by removal of males caused testosterone levels to rise. Further, female testosterone levels were correlated with the rate of 'tseep' calls, which are produced during aggressive encounters between females. Finally, polygynandrous and polygynous females sang significantly more than monogamous females. To the best of our knowledge, these results provide the first experimental support for the challenge hypothesis in female birds, and suggest that testosterone can regulate facultative female song in songbirds.