Sry (sex‐determining region on Y chromosome) is expressed in the undifferentiated, bipotential genital ridges of mammalian XY fetuses. The expression of Sry initiates testis development, but the lineage of Sry‐expressing cells is unclear. In this study, double‐transgenic mice were analyzed using the Cre/loxP system. Cre under the control of the Sry promoter was expressed in the fetal gonads of transgenic mice similarly to endogenous Sry. The Sry/Cre‐transgenic mice were crossed with CAG(cytomegalovirus immediate‐early enhancer, chicken β‐actin promoter and fusion intron of chicken β‐actin and rabbit β‐globin)/loxP/CAT/loxP/LacZ‐transgenic mice, in which the transgene expressed β‐galactosidase after a Cre‐mediated recombination event. Sertoli cells, germ cells of testes and granulosa cells of ovaries of double‐transgenic mice stained positive with X‐gal. Cre expression was detected in germ cells and peritubular/Sertoli cells in adult testes. It is not clear whether β‐galactosidase expression in the Sertoli cells of the testes occurred as a result of Cre expression in the adult or in the fetal gonads. These analyses indicate that cells expressing Sry‐inducing factors in female fetal gonads become granulosa cells.