Inhibin and activin are structurally related dimeric peptide hormones and are members of the TGF-β superfamily of proteins. In the accompanying paper, we describe transgenic mice that overexpress the inhibin α-subunit gene from a metallothionein-I promoter (MT-α) and examine the effects of the MT-α transgene on gonadotropin levels and fertility. To characterize the effects of increased inhibin α-subunit on gonadal morphology and function, in this report we investigate gonadal histology, steroid hormone levels, and the basis of ovarian cyst formation in MT-α transgenic mice. MT-α transgenic female mice develop large fluid-filled ovarian cysts of follicular origin as early as 3 months of age. By 12 months of age, more than 92% of female MT-α transgenic mice develop ovarian cysts compared with less than 25% of wild-type littermates. Ovarian cysts form unilaterally or bilaterally, and cystic ovaries often have a greatly expanded bursal sac. Additionally, the ovaries of MT-α transgenic mice contain polyovular follicles and have fewer mature antral follicles and corpora lutea. MT-α female mice exhibit abnormal steroid hormone production, with increased serum T levels and reductions in serum E with corresponding reductions in uterine mass. In the MT-α transgenic males, testis size was decreased by 20–40% compared with control males, and there is a corresponding reduction in seminiferous tubule volume. After a chronic treatment with a GnRH antagonist, MT-α female mice continued to develop ovarian cysts and bursal sac expansions, although the cysts were markedly reduced in size. These results indicate that the expression of the rat inhibin α-subunit in mice results in significant ovarian pathology, reduced testicular size, and altered ovarian steroidogenesis. The antagonist studies are consistent with a direct ovarian effect of the α-subunit transgene product mediated by changes in the inhibin-to-activin ratio in these mice.