In birds, maternally derived yolk steroids are a proposed mechanism by which females can adjust individual offspring phenotype to prevailing conditions. However, when interests of mother and offspring differ, parent-offspring conflict will arise and embryonic interests, not those of the mother, should drive offspring response to maternal steroids in eggs. Because of this potential conflict, we investigated the ability of developing bird embryos to process maternally derived yolk steroids. We examined how progesterone, testosterone and oestradiol levels changed in both the yolk/albumen (YA) and the embryo of European starling eggs during the first 10 days of development. Next, we injected tritiated testosterone into eggs at oviposition to characterize potential metabolic pathways during development. Ether extractions separated organic and aqueous metabolites in both the embryo and YA homogenate, after which major steroid metabolites were identified. Results indicate that the concentrations of all three steroids declined during development in the YA homogenate. Exogenous testosterone was primarily metabolized to an aqueous form of etiocholanolone that remained in the YA. These results clearly demonstrate that embryos can modulate their local steroid environment, setting up the potential for parent-offspring conflict. Embryonic regulation must be considered when addressing the evolutionary consequences of maternal steroids in eggs.