In mammals, germ cells within the developing gonad follow a sexually dimorphic pathway. Germ cells in the murine ovary enter meiotic prophase during embryogenesis, whereas germ cells in the embryonic testis arrest in G0 of mitotic cell cycle and do not enter meiosis until after birth. In mice, retinoic acid (RA) signaling has been implicated in controlling entry into meiosis in germ cells, as meiosis in male embryonic germ cells is blocked by the activity of a RA-catabolizing enzyme, CYP26B1. However, the mechanisms regulating mitotic arrest in male germ cells are not well understood. Cyp26b1 expression in the testes begins in somatic cells at embryonic day (E) 11.5, prior to mitotic arrest, and persists throughout fetal development. Here, we show that Sertoli cell-specific loss of CYP26B1 activity between E15.5 and E16.5, several days after germ cell sex determination, causes male germ cells to exit from G0, re-enter the mitotic cell cycle and initiate meiotic prophase. These results suggest that male germ cells retain the developmental potential to differentiate in meiosis until at least at E15.5. CYP26B1 in Sertoli cells acts as a masculinizing factor to arrest male germ cells in the G0 phase of the cell cycle and prevents them from entering meiosis, and thus is essential for the maintenance of the undifferentiated state of male germ cells during embryonic development.