Teleost fish are unique among vertebrates in that phenotypic sex or onset of sex inversion can be easily manipulated by hormonal treatments. In recent years, researchers have begun reporting concentrations of synthetic and natural hormones in the environment. Although concentrations are very low (in the parts per trillion to low parts per billion), they are still of concern because of the high potency of synthetic hormones and the enhanced susceptibility of teleost fishes, especially early life stages, to hormonal exposures. In this review, we will focus on sex differentiation in teleost fishes and how these processes in fish early life stages may be impacted by environmental hormones which are known to contaminate aquatic environments. We will start by reviewing information on sources and concentrations of hormones in the environment and continue by summarizing the state of knowledge of sex differentiation in teleost gonochoristic fishes, including information on genes involved (e.g. cyp19, dmrt1, sox9 and foxl2). We will end our review with a summary of studies that have examined the effects of androgens and estrogens on fish sex differentiation after exposure of fish embryos and larvae and with ideas for future research. Copyright © 2011 John Wiley & Sons, Ltd.