According to common understanding of sexual differentiation, the formation and development of a penile clitoris in female spotted hyaenas requires the presence of naturally circulating androgens during fetal life. The purpose of the present study was to determine potential source(s) of such fetal androgens by investigating the timing of urogenital development and placental production of androgen during early and mid-gestation. Fetuses determined to be female by molecular techniques (lack of SRY gene) at days 33 and 48 of gestation had undifferentiated gonads, but the clitoris was already 'masculinized' and was generally similar to the phallus of a 50-day-old male fetus. Wolffian and Müllerian ducts terminated at the urogenital sinus in both sexes and a urethra was present along the entire length of the clitoris and penis. The adrenal gland was large and histologically differentiated at 33 days. Steroid gradients across the uterus (a drop in delta 4-androstenedione, with increases in oestrogen and androgen), and high androstenedione in ovarian veins indicated that ovarian androstenedione was metabolized and secreted as testosterone by the placenta throughout gestation. In vitro, whole or homogenized placentae at days 48 and 58 of gestation (110 days total) metabolized radiolabelled androstenedione into testosterone and oestradiol; the specific enzymatic activity of early placental tissues was higher than at later stages. A human placental homogenate had higher aromatase activity but did not produce testosterone unless aromatase was inhibited. Infusion of labelled androstenedione into the uterine arteries of hyaenas demonstrated the conversion of this substrate into testosterone and oestradiol and their secretion into the fetal circulation. Evidently, androgen is produced by the placenta and secreted into the fetal circulation from early in pregnancy when masculinization is first evident, before differentiation of the fetal ovary.