Sex steroid changes during temperature-induced gonadal differentiation were evaluated in the olive flounder, Paralichthys olivaceus. Larvae were reared at 21 ± 0.5°C, 24 ± 0.5°C and 28 ± 0.5°C from day 40 post-hatching (dph) to 90 dph. The proportion of males was 61.1, 76.7, 87.8 and 47.8% in 21°C, 24°C, 28°C and in control groups, respectively. Gonadal differentiation was circa 65 dph, when fishes were a mean 39 mm total length (TL). The gonads developed faster when fishes were reared in higher temperatures. Radioimmunoassay (RIA) analyses indicated that the level of estradiol-17β (E2) changed during the period of gonadal differentiation and peaked at an onset of ovarian differentiation in all groups. Compared with fish in control groups, the levels of E2 were lower in thermal-treated groups, especially in the highest temperature groups. The present results indicate that E2 plays a major role in the process of ovarian differentiation, and suggest that temperature-induced masculinization in P. olivaceus is mainly due to a decrease in the E2 level during the period of ovarian differentiation.