This study describes the structural and ultrastructural characteristics of gonadal sex differentiation and expression of Vasa, a germline marker, in different developmental stages of embryos and newborn fry of the barred splitfin Chapalichthys encaustus, a viviparous freshwater teleost endemic to Mexico. In stage 2 embryos, the gonadal crest was established; gonadal primordia were located on the coelomic epithelium, formed by scarce germ and somatic cells. At stage 3, the undifferentiated gonad appeared suspended from the mesentery of the developing swimbladder and contained a larger number of germ and somatic cells. At stages 4 and 5, the gonads had groups of meiotic and non-meiotic germ cells surrounded by somatic cells; meiosis was evident from the presence of synaptonemal complexes. These stages constituted a transition towards differentiation. At stage 6 and at birth, the gonad was morphologically differentiated into an ovary or a testis. Ovarian differentiation was revealed by the presence of follicles containing meiotic oocytes, and testicular differentiation by the development of testicular lobules containing spermatogonia in mitotic arrest, surrounded by Sertoli cells. Nuage, electron-dense material associated with mitochondria, was observed in germ cells at all gonadal stages. The Vasa protein was detected in all of the previously described stages within the germ-cell cytoplasm. This is the first report on morphological characteristics and expression of the Vasa gene during sexual differentiation in viviparous species of the Goodeidae family. Chapalichthys encaustus may serve as a model to study processes of sexual differentiation in viviparous fishes and teleosts.