The prostate gland develops from the urogenital sinus in response to circulating androgens. Androgens initiate and stimulate branching morphogenesis in the urogenital sinus via unknown mediators. Heparan sulfate proteoglycans are important extracellular molecules that sequester many growth factors in the extracellular matrix and facilitate signaling by some growth factors as part of ternary complexes that include growth factors, receptors, and heparan sulfate chains. Several enzymes modify the chemical structure of heparan sulfate to further regulate its activity. An examination of these enzymes for sexually dimorphic expression in the urogenital sinus identified Sulfatase 1 (Sulf1) as an enzyme that was down-regulated in the male urogenital sinus coincident with the initiation of prostatic morphogenesis. Down-regulation of Sulf1 was accompanied by an increase in the most highly sulfated forms of heparan sulfate, and a similar increase was observed in female urogenital sinuses treated with testosterone. Inhibiting de novo sulfation of heparan sulfate blocked prostatic morphogenesis, supporting the importance of heparan sulfate modification for prostate development. To functionally test the specific role of Sulf1 during prostate development, Sulf1 was ectopically expressed in the urogenital sinus. It partially inhibited testosterone-stimulated ductal morphogenesis, and it reduced the activation of fibroblast growth factor receptors as well as the ERK1 and ERK2 MAPKs. These data identify sulfatase 1 as an inhibitor of prostatic branching morphogenesis and growth factor signaling that is down-regulated as part of the normal response to androgen action in the male urogenital sinus.