Differentiation of a testis or an ovary from a bipotential gonad is a complex developmental process involving various genes and hormones. Similarly, internal and external genital organs develop from an indeterminate stage from the complex differentiation of Wolffian and Müllerian ducts. Differentiation of the Wolffian ducts, urogenital sinus, and external genitalia is androgen dependent. Female sex differentiation appears to be a more passive process that is independent of estrogen. This article reviews the process of differentiation of the gonads and the genitalia and the factors affecting it. In addition, a clinical approach to patients with sexual ambiguity or sex reversal is discussed.