The concept that certain sexual differences in brain function are established by exposure of the brain to a particular hormonal environment during early perinatal development of the intrinsically female, or at least undifferentiated, brain is reviewed. Since sexual differentiation of the brain is a normal function of the neonatal testis, it had been (1) assumed that the ovary is hormonally quiescent perinatally and (2) argued that the effectiveness of exogenous estrogen in masculinizing the brain is a pharmacological oddity. However, recent studies from several laboratories indicate that endogenous estrogen levels in perinatal plasma are very high. Since a peculiar estrogen‐binding protein is present in the neonatal rat, it may be that the high plasma titers of estrogen, whatever their source, are sequestered by this protein and prevented from exerting a masculinizing action. The importance of this putative protective mechanism is emphasized by the currently popular view that estrogen is the effective molecular form of the masculinizing hormone.