The gonad is a unique biological system for studying cell-fate decisions. However, major questions remain regarding the identity of somatic progenitor cells and the transcriptional events driving cell differentiation. Using time-series single-cell RNA sequencing on XY mouse gonads during sex determination, we identified a single population of somatic progenitor cells prior to sex determination. A subset of these progenitors differentiates into Sertoli cells, a process characterized by a highly dynamic genetic program consisting of sequential waves of gene expression. Another subset of multipotent cells maintains their progenitor state but undergoes significant transcriptional changes restricting their competence toward a steroidogenic fate required for the differentiation of fetal Leydig cells. Our findings confirm the presence of a unique multipotent progenitor population in the gonadal primordium that gives rise to both supporting and interstitial lineages. These also provide the most granular analysis of the transcriptional events occurring during testicular cell-fate commitment. Using single-cell RNA sequencing of gonadal somatic cells during male sex determination, Stévant et al. identify a single Nr5a1-expressing progenitor cell population before sex determination that undergoes temporal fate specification with competence windows to differentiate first toward Sertoli cells or later to fetal Leydig cells.