Much research has been conducted in recent years to elucidate the mechanisms underlying the crucial developmental process of sex determination. It has now been shown that somatic sex is principally determined by the chromosomal sex and the molecular mechanisms involved in this process have become relatively well understood in both human and mouse. However, the pathways involved in the sex determination of the germ cells remain largely unknown except for the fact that the somatic cues surrounding these cells play a significant role. Moreover, which sexual pathway of the germ cells is induced or suppressed has long been a subject of some dispute. Recent findings indicate that the key molecule that influences this choice is retinoic acid. In addition, the Nanos protein has been shown to play a critical role in promoting male germ cell differentiation. In this review, the possible mechanisms underlying these events, which have been brought to light by recent findings, are summarized to provide a better and more precise understanding of our current knowledge of the sex determination and subsequent differentiation of germ cells.