In most mammals, sex is determined by the presence or absence of the SRY gene. SRY encodes a DNA-binding HMG-box transcription factor which, during embryogenesis, is the initial trigger of testis differentiation from the bipotential gonad, yet its precise mode of function remains unclear. In ovarian development, R-spondin1 and Wnt4 act through the Wnt/beta-catenin-signaling pathway to regulate TCF-dependent expression of unknown target genes and repress testis development. Conversely, SRY may be necessary to prevent the development of ovaries by inhibiting the action of ovarian-determining genes. We hypothesize that SRY prevents Wnt/beta-catenin signaling, thereby inhibiting ovarian development. In HEK293T cells, SRY repressed beta-catenin-mediated TCF-dependent gene activation in the presence of a specific GSK3beta inhibitor or an activated beta-catenin mutant, suggesting that SRY inhibits Wnt signaling at the level of beta-catenin. Three SRY mutant proteins with nuclear localization defects, encoded by XY male-to-female patients, failed to inhibit beta-catenin; surprisingly four SRY sex reversed mutants with defective DNA-binding activity showed near wild-type SRY inhibitory activity. Moreover the potent transactivator SRY-VP16 fusion protein also showed wild-type SRY inhibitory activity. Thus SRY inhibition of beta-catenin involves neither DNA-binding nor transactivation functions of SRY. beta-Catenin and SRY interact in vitro and SRY expression triggered beta-catenin localization into specific nuclear bodies in NT2/D1 and Hela cells. We conclude that SRY inhibits beta-catenin-mediated Wnt signaling by a novel nuclear function of SRY that could be important in sex determination.