The embryonic gonad is undifferentiated in males and females until a critical stage when the sex chromosomes dictate its development as a testis or ovary. This binary developmental process provides a unique opportunity to delineate the molecular pathways that lead to distinctly different tissues. The testis comprises three main cell types: Sertoli cells, Leydig cells, and germ cells. The Sertoli cells and germ cells reside in seminiferous tubules where spermatogenesis occurs. The Leydig cells populate the interstitial compartment and produce testosterone. The ovary also comprises three main cell types: granulosa cells, theca cells, and oocytes. The oocytes are surrounded by granulosa and theca cells in follicles that grow and differentiate during characteristic reproductive cycles. In this review, we summarize the molecular pathways that regulate the distinct differentiation of these cell types in the developing testis and ovary. In particular, we focus on the transcription factors that initiate these cascades. Although most of the early insights into the sex determination pathway were based on human mutations, targeted mutagenesis in mouse models has revealed key roles for genes not anticipated to regulate gonadal development. Defining these molecular pathways provides the foundation for understanding this critical developmental event and provides new insight into the causes of gonadal dysgenesis.