In diandric sex‐reversing fishes, sexually active males and females (primary phase) regularly transform into an alternative reproductive morph, terminal‐phase males, that are morphologically and behaviorally distinct. The transformation from primary to terminal phase is associated with a twofold increase in the number of luteinizing hormone‐releasing hormone (LHRH) immunopositive cells in the forebrain preoptic area, a region involved in both the initial development and daily control of reproductive physiology and behavior. We now show that implants of 11‐ketotestosterone induce increases in LHRH cell number in both primary phase sexes to the level observed in field‐collected terminal phase males. Conversely, gonadal steroids had no effect on the number of LHRH preoptic cells in terminal phase males, suggesting that this is indeed a terminal stage in the development of this species. These results demonstrate that transition to the terminal phase by both sexes involves a parallel and convergent change in LHRH cell number, which utilizes an evolutionarily conserved mechanism of sexual differentiation: the inductive effects of gonadal steroid hormones.