TGFBR3 (betaglycan), a TGFbeta superfamily coreceptor, is essential for normal seminiferous cord and Leydig cell development in the fetal mouse testis and has been associated with testicular dysgenesis syndrome in men. However, the mechanisms underlying TGFBR3-regulated testis development are unclear. We tested the hypothesis that loss of Tgfbr3 compromises the functions of TGFbeta2 in the differentiating fetal testis. Analysis of expression of transcripts encoding the TGFbeta superfamily members showed a predominance of TGFbeta mRNAs during the critical window of development when testis structure is established (11.5-14.5 days postcoitum [dpc]). When cultured under basal conditions for 2 days, explants of 13.5 dpc wild-type fetal testis/mesonephros complexes exhibited structure and gene expression profiles resembling those observed in vivo between 13.5-15.5 dpc. Similarly, development of Tgfbr3 knockout testis explants recapitulated the dysgenesis and decreased somatic cell marker expression previously observed in vivo. TGFbeta2 treatment partially rescued cord development in 11.5-13.5 dpc Tgfbr3 knockout explants but did not significantly alter somatic or germ cell gene expression. In contrast, TGFbeta2 treatment of wild-type explants disrupted cord structure and significantly downregulated the somatic and steroidogenic cell markers Amh, Sf1, Star, Cyp11a, Hsd3b1, and Cyp17a1. We conclude that 1) the compromised cord development in Tgfbr3 null fetal testis is due to, at least in part, disrupted TGFbeta2 function; 2) the reduction in steroidogenesis observed in the Tgfbr3 null testis may be regulated by additional TGFBR3 ligands, rather than TGFbeta2; and 3) both cord maintenance and somatic cell development are highly sensitive to the levels of TGFbeta2.