The primary event in mammalian sexual development is the differentiation of the bipotential gonads into either testes or ovaries. Our understanding of the molecular pathways specifying gonadal differentiation is still incomplete. To identify the initial molecular changes accompanying gonadal differentiation in mice, we have performed a large-scale transcriptional analysis of XX and XY Sf1-positive gonadal cells during sex determination. In both male and female genital ridges, a robust genetic program is initiated pre-dating the first morphological changes of the differentiating gonads. Between E10.5 and E13.5, 2306 genes were expressed in a sex-specific manner in the somatic compartment of the gonads; 1223 were overexpressed in XX embryos and 1083 in XY embryos. Although sexually dimorphic genes were scattered throughout the mouse genome, we identified chromosomal regions hosting clusters of genes displaying similar expression profiles. The cyclin-dependent kinase inhibitors Cdkn1a and Cdkn1c are overexpressed in XX gonads at E11.5 and E12.5, suggesting that the increased proliferation of XY gonads relative to XX gonads may result from the overexpression of cell cycle inhibitors in the developing ovaries. These studies define the major characteristics of testicular and ovarian transcriptional programs and reveal the richness of signaling processes in differentiation of the bipotential gonads into testes and ovaries.