Sex reversal of XY male to functional females was induced by estrogen treatment during the embryonic period in the medaka Oryzias latipes. The present study aimed to examine whether exogenous estrogen (estradiol-17β; E₂) affects early sex differentiation, paying particular attention to DMY expression and proliferation activity of germ cells in estrogen treated XY individuals. Our results showed that germ cell number was not affected by E₂ treatment at hatching, and that DMY expression was not suppressed under conditions of sex reversal. Therefore, male differentiation of germ cells, which is triggered by the expression of DMY in the supporting cell lineage, proceeds even in E₂ treated XY individuals until hatching, and early sex differentiation is not altered by estrogen. However, sex reversal occurred after hatching probably because of estrogen remaining in the yolk. Interestingly, DMY expression was also detected in the large follicle layer of E₂ treated XY ovary. These results suggested that DMY regulates male determination in early embryonic stage but does not suppress female follicle development.