Gonochoristic species have a bipotential gonad that develops into a testis or an ovary. In species whose sex is determined by a genetic factor, the expression of a sex-determining gene is the first cue that directs the development of a bipotential gonad. Subsequent expression of downstream genes induces the gonad to develop into a testis or an ovary. The TGF-beta family member Gonadal soma-derived factor (Gsdf) is thought to be an important gene for gonadal development in teleost fish, and it is expressed at higher levels in the testis than in the ovary from early to mature stages. However, there is little functional information about the gene. In this study, we targeted the Gsdf coding region in the medaka fish Oryzias latipes using transcription activator-like effector nucleases (TALENs) and studied the phenotypes of the Gsdf mutant medaka. Although normal and heterozygous XY gonads developed into a testis, all XY gonads with a homozygous mutation in Gsdf developed into an ovary at early developmental stages. However, two-thirds of Gsdf mutant XY gonads developed into testes in the adult stages. These results demonstrate that although a gonad can develop into a complete testis in the absence of Gsdf, Gsdf function is critical for directing the bipotential gonad at early developmental stages. Therefore, Gsdf is an endogenous inducer of testicular development similar to a master sex-determining gene. (C) 2015 Elsevier Inc. All rights reserved.