Sry (sex-determining region on Y chromosome) is expressed in the undifferentiated, bipotential genital ridges of mammalian XY fetuses. The expression of Sry initiates testis development, but the lineage of Sry-expressing cells is unclear. In this study, double-transgenic mice were analyzed using the Cre/loxP system. Cre under the control of the Sry promoter was expressed in the fetal gonads of transgenic mice similarly to endogenous Sry. The Sry/Cre-transgenic mice were crossed with CAG(cytomegalovirus immediate-early enhancer, chicken beta-actin promoter and fusion intron of chicken beta-actin and rabbit beta-globin)/loxP/CAT/loxP/LacZ-transgenic mice, in which the transgene expressed beta-galactosidase after a Cre-mediated recombination event. Sertoli cells, germ cells of testes and granulosa cells of ovaries of double-transgenic mice stained positive with X-gal. Cre expression was detected in germ cells and peritubular/Sertoli cells in adult testes. It is not clear whether beta-galactosidase expression in the Sertoli cells of the testes occurred as a result of Cre expression in the adult or in the fetal gonads. These analyses indicate that cells expressing Sry-inducing factors in female fetal gonads become granulosa cells.