The study of gonadal hormone control of the skeleton has focused largely on endocrine effects of estradiol in maintaining adult bone strength, yet the cellular mechanisms that control the differences in structure between adult male and female skeletons remain obscure. We have developed a new model of how gonadal hormones determine bone structure through paracrine signalling by osteocytes, an extensive intercellular communication network residing within the bone matrix. Genetic deletion of a member of the Suppressor of Cytokine Signalling family, SOCS3, using Dmp1Cre to direct recombination mainly to osteocytes, resulted in a striking sex-specific phenotype. While both male and female Dmp1Cre.SocsS3f/f (f/f) mice had greater trabecular bone volume (BV/TV) until 6 weeks of age vs Dmp1Cre controls (w/w), by 12 weeks of age, the bone phenotype changed: in males BV/TV was halved, while female BV/TV increased to 7-fold higher than sex-matched w/w. In f/f females BV/TV was so dramatically elevated that the inner mesh-like trabecular network was continuous with, and indistinguishable from, highly porous cortical bone, suggesting a defect in the process of corticalization. To determine how gonadal hormones controlled this, f/f and w/w mice were gonadectomised at 6 weeks, and treated for a further 6 weeks with 17β-estradiol (E2) or non-aromatizable dihydrotestosterone (DHT) by slow-release implant. These doses prevented gonadectomy-induced bone loss in w/w controls. In female f/f mice, gonadectomy partially restored cortical integrity, and DHT completely normalized their phenotype. When male f/f mice were treated with E2, the phenotype fully recapitulated that of female f/f mice: cortical bone was highly porous and indistinguishable from abundant trabecular bone. Thus trabecular coalescence, the process by which thickened cortical bone forms from the inner trabecular network, is promoted by testosterone’s action to inhibit SOCS3-dependent cytokine signalling in the osteocyte network, and is suppressed by an opposing action of estradiol.