The researchers focused on three genes
Australian researchers have identified a significant link between a gene involved in testosterone action and male-to-female transsexualism.
DNA analysis from 112 male-to-female transsexual volunteers showed they were more likely to have a longer version of the androgen receptor gene.
The genetic difference may cause weaker testosterone signals, the team reported in Biological Psychiatry.
However, other genes are also likely to play a part, they stressed.
Increasingly, biological factors are being implicated in gender identity.
One study has shown that certain brain structures in male-to-female transsexual people are more "female like".
In the latest study, researchers looked for potential differences in three genes known to be involved in sex development - coding for the androgen receptor, the oestrogen receptor and an enzyme which converts testosterone to oestrogen.
Comparison of the DNA from the male to female transsexual participants with 258 controls showed a significant link with a long version of the androgen receptor gene and transsexualism.
It is known that longer versions of the androgen receptor gene are associated with less efficient testosterone signalling.
This reduced action of the male sex hormone may have an effect on gender development in the womb, the researchers speculated.
"We think that these genetic differences might reduce testosterone action and under masculinise the brain during foetal development," said researcher Lauren Hare from Prince Henry's Institute of Medical Research.
Co-author Professor Vincent Harley added: "There is a social stigma that transsexualism is simply a lifestyle choice, however our findings support a biological basis of how gender identity develops."
Although this is the largest genetic study of transsexualism to date, the researchers now plan to see if the results can be replicated in a larger population.
Terry Reed from the Gender Identity Research and Education Society said she was convinced of a biological basis to transsexualism.
"This study appears to reinforce earlier studies which have indicated that, in some trans people, there may be a genetic trigger to the development of an atypical gender identity.
"However, it may be just one of several routes and, although it seems extremely likely that a biological element will always be present in the aetiology of transsexualism, it's unlikely that developmental pathways will be the same in all individuals."