Insects are the only animals in which sexual differentiation is controlled by sex-specific RNA splicing. The doublesex (dsx) transcription factor produces distinct male and female protein isoforms (DsxM and DsxF) under the control of the RNA splicing factor transformer (tra). tra itself is also alternatively spliced so that a functional Tra protein is only present in females; thus, DsxM is produced by default, while DsxF expression requires Tra. The sex-specific Dsx isoforms are essential for both male and female sexual differentiation. This pathway is profoundly different from the molecular mechanisms that control sex-specific development in other animal groups. In animals as different as vertebrates, nematodes, and crustaceans, sexual differentiation involves male-specific transcription of dsx-related transcription factors that are not alternatively spliced and play no role in female sexual development. To understand how the unique splicing-based mode of sexual differentiation found in insects evolved from a more ancestral transcription-based mechanism, we examined dsx and tra expression in three basal, hemimetabolous insect orders. We find that functional Tra protein is limited to females in the kissing bug Rhodnius prolixus (Hemiptera), but is present in both sexes in the louse Pediculus humanus (Phthiraptera) and the cockroach Blattella germanica (Blattodea). Although alternatively spliced dsx isoforms are seen in all these insects, they are sex-specific in the cockroach and the kissing bug but not in the louse. In B. germanica, RNAi experiments show that dsx is necessary for male, but not female, sexual differentiation, while tra controls female development via a dsx-independent pathway. Our results suggest that the distinctive insect mechanism based on the tra-dsx splicing cascade evolved in a gradual, mosaic process: sex-specific splicing of dsx predates its role in female sexual differentiation, while the role of tra in regulating dsx splicing and in sexual development more generally predates sex-specific expression of the Tra protein. We present a model where the canonical tra-dsx axis originated via merger between expanding dsx function (from males to both sexes) and narrowing tra function (from a general splicing factor to the dedicated regulator of dsx).