Although testosterone deficiency (TD) may be present in one out of five men 40 years or older, the factors responsible for TD remain largely unknown. Leydig stem cells (LSCs) differentiate into adult Leydig cells (ALC) and produce testosterone in the testes under the pulsatile control of luteinizing hormone (LH) from the pituitary gland. However, recent studies have suggested that the testicular microenvironment (TME), which is comprised of Sertoli and peritubular myoid cells (PMC), plays an instrumental role in LSC differentiation and testosterone production under the regulation of the desert hedgehog signaling pathway (DHH). It was hypothesized that the TME releases paracrine factors to modulate LSC differentiation. For this purpose, cells (Sertoli, PMCs, LSCs, and ALCs) were extracted from men undergoing testis biopsies for sperm retrieval and were evaluated for the paracrine factors in the presence or absence of the TME (Sertoli and PMC). The results demonstrated that TME secretes leptin, which induces LSC differentiation and increases testosterone production. Leptin's effects on LSC differentiation and testosterone production, however, are inversely concentration-dependent: positive at low doses and negative at higher doses. Mechanistically, leptin binds to the leptin receptor on LSCs and induces DHH signaling to modulate LSC differentiation. Leptin-DHH regulation functions unidirectionally insofar as DHH gain or loss of function has no effect on leptin levels. Taken together, these findings identify leptin as a key paracrine factor released by cells within the TME that modulates LSC differentiation and testosterone release from mature Leydig cells, a finding with important clinical implications for TD.