Organization of neuronal circuitry required for adult sexual behavior occurs during perinatal development and is largely carried out by resident innate immune cells, mast cells and microglia, just prior to birth and during the first week of life in the rodent, when the male brain makes estradiol from precursor androgens secreted by the testes. Mast cells degranulate in response to estradiol in the preoptic area (POA), releasing histamine, which in turn stimulates prostaglandin E2 (PGE2) production by microglia. The mechanism of PGE2-mediated differentiation of excitatory synaptic density in the preoptic area (POA) around birth is known and results in male sexual behavior in adulthood. Aberrant mast cell activation masculinizes POA spine density and sexual behavior of females and demasculinizes these measures in males. Despite its dependence on gonadal hormones for differentiation, the sexually dimorphic nucleus (SDN) of the POA, does not begin differentiating until brain hormone levels are no longer different between the sexes, on postnatal day 5 (PN5). In the SDN, males and females are born with the same number of neurons, but they selectively die off in females, whereas the production of estradiol at birth in males protects them. The SDN is located within the central medial preoptic nucleus (cMPN), where we discovered females have more phagocytic microglia than males during the first postnatal week, a phenomenon that peaked on postnatal day 8 (PN8). Inhibition of microglial phagocytosis by intracerebral injections of an antibody to CD11b (complement receptor 3 CR3) or mast cell degranulator, c48/80, from PN5-7 reduced microglial phagocytosis and increased the volume of the SDN in both sexes on PN8, demonstrating that microglia are engaging in phagoptosis (engulfment of stressed, but viable cells) to shape the size of the SDN. Females treated neonatally with the CD11b (CR3) antibody blockade lost their typical sexual preference for male odor in adulthood. This discovery challenges the dogma that estradiol prevents neuronal apoptosis in the male SDN and reveals novel hormone and neuroimmune mechanisms that regulate phagocytic and neuroprotective cascades during normal brain development.