The earliest known vertebrate copulatory organs are claspers, penis-like modifications of the pelvic fins that first appear in the fossil record of Devonian placoderms and are associated with evolution of internal fertilization and viviparity. Today, claspers are found in male chondrichthyans, where they retain their function as intromittent organs. However little is known about clasper evolution, or why only males undergo this fin modification. Using the Little Skate (Leucoraja erinacea) as a model organism, this study aims to identify the molecular mechanisms involved in formation of this evolutionary novelty. We find that the genetic circuit that drives vertebrate fin and limb development has prolonged activity in the fin buds of male skates, where it promotes localized outgrowth and differentiation of the clasper skeleton. Sexually dimorphic activity of the Sonic hedgehog (Shh) pathway, including its upstream regulator Hand2, maintains the feedback loop between Shh and fibroblast growth factors (Fgfs) in the posterior male pelvic fin. We demonstrate that Shh signaling is necessary for male clasper development, as well as sufficient to induce a clasper-like skeleton in female embryos. The sexually dimorphic activity of this circuit led us to ask whether androgen receptor (AR) is required for the male-specific pattern of Shh. We find that AR is necessary for Shh activity in male pelvic fins, and treatment of female embryos with the androgen 11-ketotestosterone is sufficient to maintain the Shh-Fgf circuit in female embryos. Taken together, these results suggest that hormonal control of Shh signaling was essential for the evolution of early copulatory organs.