Despite the fact that fetal Leydig cells are recognized as the primary source of androgens in male embryos, the mechanisms by which steroidogenesis occurs within the developing testis remain unclear. A genetic approach was used to visualize and isolate fetal Leydig cells from remaining cells within developing mouse testes. Cyp11a1-Cre mice were bred to mT/mG dual reporter mice to target membrane-tagged enhanced green fluorescent protein (GFP) within steroidogenic cells, whereas other cells expressed membrane-tagged tandem-dimer tomato red. Fetal Leydig cell identity was validated using double-labeled immunohistochemistry against GFP and the steroidogenic enzyme 3beta-HSD, and cells were successfully isolated as indicated by qPCR results from sorted cell populations. Because fetal Leydig cells must collaborate with neighboring cells to synthesize testosterone, we hypothesized that the fetal Leydig cell microenvironment defined their capacity for androgen production. Microfluidic culture devices were used to measure androstenedione and testosterone production of fetal Leydig cells that were cultured in cell-cell contact within a mixed population, were isolated but remained in medium contact via compartmentalized co-culture with other testicular cells, or were isolated and cultured alone. Results showed that fetal Leydig cells maintained their identity and steroidogenic activity for 3–5 days in primary culture. Microenvironment dictated proficiency of testosterone production. As expected, fetal Leydig cells produced androstenedione but not testosterone when cultured in isolation. More testosterone accumulated in medium from mixed cultures than from compartmentalized co-cultures initially; however, co-cultures maintained testosterone synthesis for a longer time. These data suggest that a combination of cell-cell contact and soluble factors constitute the ideal microenvironment for fetal Leydig cell activity in primary culture.