Sexually dimorphic development of the gonads is controlled by positive and negative regulators produced by somatic cells. Many Wnt ligands, including ones that signal via the canonical beta-catenin pathway, are expressed in fetal gonads. beta-catenin, a key transcriptional regulator of the canonical Wnt pathway and an element of the cell adhesion complex, is essential for various aspects of embryogenesis. To study the involvement of beta-catenin in sex determination, we ablated beta-catenin specifically in the SF1-positive population of somatic cells. Although beta-catenin was present in gonads of both sexes, it was necessary only for ovarian differentiation but dispensable for testis development. Loss of beta-catenin in fetal testes did not affect Sertoli cell differentiation, testis morphogenesis or masculinization of the embryos. However, we observed molecular and morphological defects in ovaries lacking beta-catenin, including formation of testis-specific coelomic vessel, appearance of androgen-producing adrenal-like cells and loss of female germ cells. These phenotypes were strikingly similar to those found in the R-spondin1 (Rspo1) and Wnt4 knockout ovaries. In the absence of beta-catenin, expression of Wnt4 was down-regulated while that of Rspo1 was not affected, placing beta-catenin as a component in between Rspo1 and Wnt4. Our results demonstrate that beta-catenin is responsible for transducing sex-specific signals in the SF1-positive somatic cell population during mouse gonadal development.