One of the major decisions that germ cells make during their development is whether to differentiate into oocytes or sperm. In mice, the germ cells' decision to develop as male or female depends on sex-determining signalling molecules in the embryonic gonadal environment rather than the sex chromosome constitution of the germ cells themselves. In response to these sex-determining cues, germ cells in female embryos initiate oogenesis and enter meiosis, whereas germ cells in male embryos initiate spermatogenesis and inhibit meiosis until after birth. However, it is not clear whether the signalling molecules that mediate germ cell sex determination act in the developing testis or the developing ovary, or what these signalling molecules might be. Here, we review the evidence for the existence of meiosis-inducing and meiosis-preventing substances in the developing gonad, and more recent studies aimed at identifying these molecules in mice. In addition, we discuss the possibility that some of the reported effects of these factors on germ cell development may be indirect consequences of impairing sexual differentiation of gonadal somatic cells or germ cell survival. Understanding the molecular mechanisms of germ cell sex determination may provide candidate genes for susceptibility to germ cell tumours and infertility in humans.