Therian mammals utilise an XX/XY system of sex determination in which the Y-linked gene Sry (Sex-determining region Y) exerts a dominant masculinising influence on sexual development. Sex chromosome homology and comparative sequence studies suggest that Sry evolved from the related Sox3 gene on the X chromosome, although there is no direct functional evidence to support this hypothesis. Indeed, loss of function mutations show that SOX3 is not required for sex determination in mice or humans, but it is critical for normal CNS and pituitary development. To investigate the developmental consequences of overexpression, we created Sox3 transgenic mice. One of these lines expressed Sox3 ectopically in the bipotential gonad due to a position effect and frequently exhibited complete XX male sex reversal. Morphological, gene expression and cell co-transfection studies indicate that SOX3 induces testis differentiation in this particular line of mice by activation of Sox9 via a similar mechanism to SRY. In addition, array-Comparative Genomic Hybridisation analysis of sixteen SRY-negative XX males revealed three patients with rearrangements of the SOX3 regulatory region, indicating that SOX3 gain-of-function in humans also causes XX male sex reversal. Together, these data suggest that SOX3 and SRY proteins are functionally interchangeable in sex determination and support the notion that Sry evolved from Sox3 via a regulatory mutation that led to its de novo expression in the early gonad. These data also provide novel insight into the mechanism that underpins XX male sex reversal in humans in the absence of SRY.