To evaluate the possible role of germ cells on sex differentiation of the gonads in vertebrates, the teleost fish, medaka (Oryzias latipes), was used to generate a gonad without germ cells. The germ cell-deficient medaka reveals multiple effects of germ cells on the process of sex differentiation. The previously isolated mutant medaka, hotei, with the excessive number of germ cells may support the contention that the proliferation of germ cells is related to feminization of the gonad. Futhermore, we show that two modes of proliferation for either maintenance of germ cells or commitment to gametogenesis are important components of the sex differentiation of medaka developing gonads. An intimate cross talk between germ cells and gonadal somatic cells during the sex differentiation will be discussed.