The sexual differentiation of reproductive physiology and behavior in the rodent brain is largely determined by estradiol aromatized from testicular androgens. The cellular mechanisms by which estradiol masculinizes the brain are beginning to emerge and revealing novel features of brain development that are highly region-specific. In the preoptic area, the major site controlling male sexual behavior, estradiol increases the level of the COX-2 enzyme and its product, prostaglandin E2 which promotes dendritic spine synaptogenesis. In the ventromedial nucleus of the hypothalamus, the major site controlling female reproductive behavior, estradiol promotes glutamate release from synaptic terminals, activating NMDA receptors and the MAP kinase pathway. In the arcuate nucleus, a major regulator of anterior pituitary function, estradiol increases GABA synthesis, altering the morphology of neighboring astrocytes and reducing formation of dendritic spines synapses. Glutamate, GABA and the importance of neuronal-astrocytic cross-talk are emerging as common aspects of masculinization. Advances are also being made in the mechanistic basis of female brain development, although the challenges are far greater.