This paper takes a critical look at the hormonal basis of sexual behavior and concludes that it plays no part in determination of sexual activity or sexual preference in any of its forms including homosexuality and transsexualism. The empirical evidence of psychosexual functioning does not support Money's schema which suggest that sexual variation (homosexuality), transsexualism, and transvestism are incongruities of gender identity. At alternative approach which places gender differentiation and sexual variation in a social context is presented.