BACKGROUND: The disorders comprising human ‘testicular dysgenesis syndrome’ (TDS) may be increasing in incidence. TDS originates in fetal life but the mechanisms are not known, and discerning them requires an animal model. METHODS AND RESULTS: The study investigated whether male rats exposed in utero to dibutyl phthalate [DBP; 500 mg/kg on gestational days (GD) 13–21] would provide a suitable model for human TDS. DBP induced a high rate (>60%) of cryptorchidism (mainly unilateral), hypospadias, infertility and testis abnormalities, similar to those in human TDS. Cell‐specific immunohistochemistry and confocal microscopy were used to track development of Sertoli [anti‐Müllerian hormone (AMH), Wilm’s tumour (WT‐1) protein, p27^kip], Leydig [3β‐hydroxysteroid dehydrogenase (3β‐HSD)], germ (DAZL protein) and peritubular myoid (smooth muscle actin) cells from fetal life to adulthood. In scrotal and cryptorchid testes of DBP‐exposed males, areas of focal dysgenesis were found that contained Sertoli and Leydig cells, and gonocytes and partially formed testicular cords; these dysgenetic areas were associated with Leydig cell hyperplasia at all ages. Suppression (∼90%) of testicular testosterone levels on GD 19 in DBP‐exposed males, coincident with delayed peritubular myoid cell differentiation, may have contributed to the dysgenesis. Double immunohistochemistry using WT‐1 (expressed in all Sertoli cells) and p27^kip (expressed only in mature Sertoli cells) revealed immature Sertoli cells in dysgenetic areas. DBP‐exposed animals also exhibited Sertoli cell‐only (SCO) tubules, sporadically in scrotal and predominantly in cryptorchid, testes, or foci of SCO within normal tubules in scrotal testes. In all SCO areas the Sertoli cells were immature. Intratubular Leydig cells were evident in DBP‐exposed animals and, where these occurred, Sertoli cells were immature and spermatogenesis was absent. Abnormal Sertoli cell–gonocyte interaction was evident at GD 19 in DBP‐exposed rats coincident with appearance of multinucleated gonocytes, although these disappeared by postnatal day 10 during widespread loss of germ cells. CONCLUSIONS: Abnormal development of Sertoli cells, leading to abnormalities in other cell types, is our hypothesized explanation for the abnormal changes in DBP‐exposed animals. As the testicular and other changes in DBP‐exposed rats have all been reported in human TDS, DBP exposure in utero may provide a useful model for defining the cellular pathways in TDS.