DAX-1, an X-linked member of the orphan nuclear receptor superfamily of transcription factors, plays a key role in sex determination and gonadal differentiation. Dax1-deficient male mice are infertile and have small testes despite normal serum levels of T and gonadotropins. Examination of Dax1-deficient testes reveals dilated seminiferous tubules and abnormal parameters of sperm fertilizing capability consistent with a possible obstruction in the testis. To test this hypothesis, we performed a comprehensive evaluation of the male reproductive tract in Dax1-deficient mice. Light and electron microscopic examination revealed the rete testis is blocked by aberrantly located Sertoli cells, creating a tailback of necrosing sperm in the testis. Sertoli cells also obstruct the proximal and middle efferent ductules, and this is accompanied by an overgrowth of the efferent duct epithelium. Seminiferous tubules close to the rete testis contain ectopic Leydig cells, distinct from the hyperplastic Leydig cells present in the interstitial space. The peritubular tissue surrounding these tubules is frequently abnormal, containing relatively undifferentiated myoid cells and no basement membrane between the myoid cells and Sertoli cells. A third of aged (>1-yr-old) Dax1-deficient male mice develop sex cord-stromal tumors, derived from cells of the Sertoli/granulosa cell or Leydig cell lineages. Combined, these observations reveal abnormal differentiation and proliferation of Leydig cells and Sertoli cells in Dax1-deficient male mice, leading to obstruction of the rete testis and infertility.