BACKGROUND: Despite some advances in recent years, the genetic control of gonadal sex differentiation during embryogenesis is still not completely understood. To identify new candidate genes involved in ovary and testis development, RNA-seq was used to define the transcriptome of embryonic chicken gonads at the onset of sexual differentiation (day 6.0/stage 29). RESULTS: RNA-seq revealed more than 1000 genes that were transcribed in a sex-biased manner at this early stage of gonadal differentiation. Comparison with undifferentiated gonads revealed that sex biased expression was derived primarily from autosomal rather than sex-linked genes. Gene ontology and pathway analysis indicated that many of these genes encoded proteins involved in extracellular matrix function and cytoskeletal remodelling, as well as tubulogenesis. Several of these genes are novel candidate regulators of gonadal sex differentiation, based on sex-biased expression profiles that are altered following experimental sex reversal. We further characterised three female-biased (ovarian) genes; calpain-5 (CAPN5), G-protein coupled receptor 56 (GPR56), and FGFR3 (fibroblast growth factor receptor 3). Protein expression of these candidates in the developing ovaries suggests that they play an important role in this tissue. CONCLUSIONS: This study provides insight into the earliest steps of vertebrate gonad sex differentiation, and identifies novel candidate genes for ovarian and testicular development.