Follistatin 1 (Fst1) is a binding protein of activin and some other members of the transforming growth factor beta superfamily. It plays a key role in the regulation of gonadal function in vertebrates. An oocyte-specific promoter, derived from the zona pellucida 3 (zp3) gene, was used to create transgenic fst1 zebrafish (Danio rerio). Three independent oocyte-specific overexpression fst1 transgenic zebrafish lines were generated. Decreased levels of phosphorylated Smad3 were observed in ovarian tissues in fst1 transgenic fish compared with those from their control female siblings. Analyses on the numbers of mature eggs also indicated the attenuated oocyte maturation in the fst1 transgenic fish and in the females administered recombinant human Fst protein. Remarkably, when raised in the same tank with their control siblings, a significantly larger proportion of the fst1 transgenic population developed as males compared to the controls. Moreover, assessing the levels of active caspase 3 in gonadal tissues at 30 days postfertilization, we observed increased levels of apoptosis in the transitioning gonads of the transgenic fish compared to nontransgenic control siblings. Our results demonstrate that zebrafish Fst1 not only acts as an inhibitory binding protein of activin in the regulation of oocyte maturation in adult females but also plays a potential role in the masculinization of juveniles. Overall, the present study contributes to our understanding of the paracrine roles of fst1 as well as normal oocyte maturation and gonadal differentiation.