Drosophila adult females but not males contain high levels of the steroid hormone ecdysone, however, the roles played by steroid signaling during Drosophila gametogenesis remain poorly understood. Drosophila germ cells in both sexes initially follow a similar pathway. After germline stem cells are established, their daughters form interconnected cysts surrounded by somatic escort (female) or cyst (male) cells and enter meiosis. Subsequently, female cysts acquire a new covering of somatic cells to form follicles. Knocking down expression of the heterodimeric ecdysteroid receptor (EcR/Usp) or the E75 early response gene in escort cells disrupts 16-cell cyst production, meiotic entry and follicle formation. Escort cells lose their squamous morphology and unsheath germ cells. By contrast, disrupting ecdysone signaling in males does not perturb cyst development or ensheathment. Thus, sex-specific steroid signaling is essential for female germ cell development at the time male and female pathways diverge. Our results suggest that steroid signaling plays an important sex-specific role in early germ cell development in Drosophila, a strategy that may be conserved in mammals.