Evolutionary novelties require rewiring of transcriptional networks and/or the evolution of new gene functions. Sex determination (SD), one of the most plastic evolutionary processes, requires such novelties. Studies on the evolution of vertebrate SD revealed that new master SD genes are generally recruited from genes involved in the downstream SD regulatory genetic network. Only a single exception to this rule is currently known in vertebrates: the intriguing case of the salmonid master SD gene (), which arose from duplication of an immune-related gene. This exception immediately posed the question of how a gene outside from the classical sex differentiation cascade could acquire its function as a male SD gene. Here we show that SdY became integrated in the classical vertebrate sex differentiation cascade by interacting with the Forkhead box domain of the female-determining transcription factor, Foxl2. In the presence of Foxl2, SdY is translocated to the nucleus where the SdY:Foxl2 complex prevents activation of the aromatase () promoter in cooperation with Nr5a1 (Sf1). Hence, by blocking a positive loop of regulation needed for the synthesis of estrogens in the early differentiating gonad, SdY disrupts a preset female differentiation pathway, consequently allowing testicular differentiation to proceed. These results also suggest that the evolution of unusual vertebrate master sex determination genes recruited from outside the classical pathway like is strongly constrained by their ability to interact with the canonical gonadal differentiation pathway.