Sex determination in Drosophila is commonly thought to be a cell-autonomous process, where each cell decides its own sexual fate based on its sex chromosome constitution (XX versus XY). This is in contrast to sex determination in mammals, which largely acts nonautonomously through cell-cell signaling. Here we examine how sexual dimorphism is created in the Drosophila gonad by investigating the formation of the pigment cell precursors, a male-specific cell type in the embryonic gonad. Surprisingly, we find that sex determination in the pigment cell precursors, as well as the male-specific somatic gonadal precursors, is non-cell autonomous. Male-specific expression of Wnt2 within the somatic gonad triggers pigment cell precursor formation from surrounding cells. Our results indicate that nonautonomous sex determination is important for creating sexual dimorphism in the Drosophila gonad, similar to the manner in which sex-specific gonad formation is controlled in mammals.