Testicular fetal Leydig cells are a specialized cell type responsible for embryo masculinization. Fetal Leydig cells produce androgens, that induce the differentiation of male reproductive system and sexual characteristics. Deficiencies in Leydig cell differentiation leads to various disorders of sex development and male reproductive defects such as ambiguous genitalia, hypospadias, cryptorchidism, and infertility. Fetal Leydig cells are thought to originate from proliferating progenitor cells in the testis interstitium, marked by genes like Arx , Pdgfra , Tcf21 and Wnt5a . However, the precise mechanisms governing the transition from interstitial cells to fetal Leydig cells remain elusive. Through integrated approaches involving mouse models and single-nucleus multiomic analyses, we discovered that fetal Leydig cells originate from a Nr2f2 -positive non-steroidogenic interstitial cell population. Embryonic deletion of Nr2f2 in mouse testes resulted in disorders of sex development, including dysgenic testes, Leydig cell hypoplasia, cryptorchidism, and hypospadias. We found that NR2F2 promotes the progenitor cell fate while suppresses Leydig cell differentiation by directly and indirectly controlling a cohort of transcription factors and downstream genes. Bioinformatic analyses of single-nucleus ATAC-seq and NR2F2 ChIP-seq data revealed putative transcription factors co-regulating the process of interstitial to Leydig cell differentiation. Collectively, our findings not only highlight the critical role of Nr2f2 in orchestrating the transition from interstitial cells to fetal Leydig cells, but also provide molecular insight into the disorders of sex development as a result of Nr2f2 mutations.