Hypospadias is the abnormal opening of the urethra on the underside of the penis and occurs in approximately 1/125 live male births worldwide. The incidence rate of hypospadias has dramatically increased over the past few decades. This is now attributed, at least in part, to our exposure to endocrine-disrupting chemicals (EDCs) which alter the hormonal signals required for development of the penis. In humans androgens are the main drivers of fusion of the urethral folds to form the urethra within the shaft of the penis, a process required for termination of the urethra in its normal location at the tip of the penis. However, recent research has suggested that estrogen also plays a role in this process. To better understand how EDCs impact urethral development it is essential that we understand the normal function of hormones during development of the penis. To define the role of estrogen in urethral development we examined development of the penis in the aromatase (Cyp19a1) Knockout (ArKO) mouse strain in which endogenous estrogen production is completely ablated. We found that the ArKO penis had a mild hypospadias phenotype. The developing ArKO postnatal penis displayed an early disruption in preputial development, which likely causes the mild hypospadias observed in adults. Using qPCR, we found altered expression of keratin genes and key urethral patterning genes in response to the disrupted estrogen signaling. The hypospadias phenotype was almost identical to that reported for the estrogen receptor α (ERα) knockout confirming that ERα is the predominant receptor for mediating estrogen action during development of the mouse penis. Our results show that estrogen is required for normal prepucial development and placement of the mature urethral opening at the distal aspect of the penis. We also identified several genes which are potential downstream targets of estrogen during normal urethral closure. With this knowledge, we can now better understand how anti-estrogenic as well as estrogenic EDCs disrupt urethral closure to cause mild hypospadias in both mice and humans.