Brain sexual differentiation is mediated through testosterone, which acts during the perinatal period in the form of both 5α-dihydrotestosterone and estradiol. In order to gain insight into the molecular mechanisms involved, we studied induction of c-fos, an index of functional neuronal activation, in the 2-day-old female rat brain after injection of a masculinizing dose of testosterone. Administration of testosterone resulted in induction of c-fos gene expression in the hypothalamus, as determined by Northern analysis. Following immunocytochemistry, we demonstrated an increase in the number of Fos-positive nuclei in the median and medial preoptic nucleus, the medial preoptic area extending to the lateral preoptic area, and the peri- and paraventricular area. In an effort to see whether testosterone acted as 5α-dihydrotestosterone or as estradiol, we injected either steroid and looked at fos induction. Estradiol mimicked the effect of testosterone, while 5α-dihydrotestosterone was without effect. Furthermore, injection of an estrogen receptor blocker, clomiphene, together with testosterone, abolished the testosterone-induced increase in Fos-positive nuclei, thus confirming the finding that testosterone induces c-fos by acting through estrogen receptors. Electrophoretic mobility shift assays showed that nuclear extracts from 2-day-old female hypothalamus contain a protein, most probably the estrogen receptor, which binds specifically to oligodeoxynucleotides with the sequence of either vitERE, the consensus estrogen-responsive element (ERE) found in the vittelogenin gene, or fosERE, the ERE found in the 3′-untranslated region of the mouse c-fos gene. This suggests that the effect of testosterone-derived estradiol on c-fos expression is a direct one, mediated by binding of estrogen receptors to an ERE in the c-fos gene-regulatory regions.