Normal cellular growth and proliferation are highly regulated processes. It is known that estrogen (E2) and progesterone (P) as the major sex steroids play an important role in the normal devevelopment. For example, E2 and P have both proliferative and differentiating effects on uterine and breast cells and testosterone (dihydrotestosterone) is known to influence many reproductive functions, protein metabolism, muscle building and other functions. These steroids influence physiological processes by initially interacting via cognate receptors which act as transcription factors influencing the hormone-responsive genes. The use of estrogen and progesterone replacement therapy for postmenopausal symptoms has been implicated in increasing the risks of breast and uterine cancers. Testosterone may have a role in breast or uterine cancers which is not clearly understood. However, the precise roles of sex hormones during embryonic development are not completely elucidated. In order to understand the developmental effects of sex steroids, we have used embryonic stem cells (ESCs) as a model system, which mimic early embryonic development. We have examined the effects of E2, progesterone, dihydrotestosterone, anti-estrogen (ICI 182,780) and anti-progesterone (Ru-486) on the proliferation and differentiation of ESCs. Our results demonstrated a higher rate of differentiation of ESCs when treated with a combination of hormones, estrogen and progesterone, and individually, progesterone and dihydrotestosterone, in a concentration dependent manner (1 nm to 1uM) as compared with the controls. The proliferative and differentiative properties of hormones were inhibited by treatment with anti-hormones. Retinoic acid (RA) treated embryoid bodies (EBs) derived from ESCs differentiated at a higher rate (2 to 3 fold) in the presence of estrogen, progesterone, or dihydrotestosterone. Immunocytochemical analysis revealed an increased expression of estrogen receptors in the nucleus of the cells, derived from the RA-treated EBs in the medium containing estrogen and dihydrotestosterone. Our observation also suggests an increased expression of progesterone receptors in the EBs treated with progesterone. Preliminary results of quantitative polymerase chain reaction also indicated increased expression of estrogen receptor in ESCs treated with E2 and progesterone.