Sex determination in papaya is controlled by a recently evolved XY chromosome pair, with two slightly different Y chromosomes controlling the development of males (Y) and hermaphrodites (Y(h)). To study the events of early sex chromosome evolution, we sequenced the hermaphrodite-specific region of the Y(h) chromosome (HSY) and its X counterpart, yielding an 8.1-megabase (Mb) HSY pseudomolecule, and a 3.5-Mb sequence for the corresponding X region. The HSY is larger than the X region, mostly due to retrotransposon insertions. The papaya HSY differs from the X region by two large-scale inversions, the first of which likely caused the recombination suppression between the X and Y(h) chromosomes, followed by numerous additional chromosomal rearrangements. Altogether, including the X and/or HSY regions, 124 transcription units were annotated, including 50 functional pairs present in both the X and HSY. Ten HSY genes had functional homologs elsewhere in the papaya autosomal regions, suggesting movement of genes onto the HSY, whereas the X region had none. Sequence divergence between 70 transcripts shared by the X and HSY revealed two evolutionary strata in the X chromosome, corresponding to the two inversions on the HSY, the older of which evolved about 7.0 million years ago. Gene content differences between the HSY and X are greatest in the older stratum, whereas the gene content and order of the collinear regions are identical. Our findings support theoretical models of early sex chromosome evolution.