We have raised an antibody specifically recognizing endogenous mouse SRY protein and used it to investigate the molecular and cellular mode of action of SRY in testis determination. We find that expression of SRY protein closely mirrors the expression of Sry mRNA in mouse genital ridges and is detectable for 6 to 8 h after the mRNA ceases to be detectable. The subset of somatic cells that expresses SRY begins to express SOX9 almost immediately. Since these SOX9-positive cells go on to develop as Sertoli cells, it appears that SRY expression marks the pre-Sertoli cell lineage and leads to up-regulation of Sox9 expression cell-autonomously. However, a small proportion of SOX9-positive cells did not appear to express SRY, possibly reflecting the additional involvement of paracrine signaling in activating Sox9 transcription in these cells. We confirmed by ex vivo cell mixing experiments that SRY is able to engage receptor-mediated signaling to up-regulate Sox9 expression. Finally, we showed by employing specific inhibitors that the causative signaling molecule is prostaglandin D₂ (PGD₂) and that PGD₂ can induce Sox9 transcription in cultured XX gonads. Our data indicate a mechanism whereby Sry uses both a cell-autonomous mechanism and a PGD₂-mediated signaling mechanism to stimulate expression of Sox9 and induce the differentiation of Sertoli cells in vivo.