Ovarian development absolutely depends on communication between somatic and germ cell components. In contrast, it is not until after birth that interactions between somatic and germ cells play an important role in testicular maturation and spermatogenesis. Previously, we discovered that Irx3 expression was localized specifically to female gonads during embryonic development; therefore, we sought to determine the function of this genetic locus in developing gonads of both sexes. The fused toes (Ft) mutant mouse is missing 1.6 Mb of chromosome 8, which includes the entire IrxB cluster (Irx3, Irx5, Irx6), Ftm, Fts, and Fto genes. Homozygote Ft mutant embryos die around embryonic day 13.5 (E13.5); therefore, to assess later development, we harvested gonads at E11.5 and transplanted them into nude mouse hosts. Our results show defects in somatic and germ cell maturation in developing gonads of both sexes. Testis development was normal initially; however, by 3-wk posttransplantation, expression of Sertoli and peritubular myoid cell markers were decreased. In many cases, gonocytes failed to migrate to structurally impaired basement membranes of seminiferous cords. Developmental abnormalities of the ovary appeared earlier and were more severe. Over time, the Ft mutant ovary formed very few primordial or primary follicles, which contained oocytes that failed to grow and were surrounded by scarce granulosa cells that expressed low levels of FOXL2. By 3 wk after transplantation, it was difficult to identify ovarian tissue in Ft mutant ovary transplants. In summary, we conclude that the Ft locus contains genes essential for somatic-germ cell interactions, without which the germ cell niche fails to mature in both sexes.