Regeneration of the testis from pluripotent stem cells is a real challenge, reflecting the complexity of the interaction of germ cells and somatic cells. Here we report the generation of testicular somatic cell-like cells (TesLCs) including Sertoli cell-like cells (SCLCs) from mouse embryonic stem cells (ESCs) in xeno-free culture. We find that Nr5a1/SF1 is critical for interaction between SCLCs and PGCLCs. Intriguingly, co-culture of TesLCs with epiblast-like cells (EpiLCs), rather than PGCLCs, results in self-organised aggregates, or testicular organoids. In the organoid, EpiLCs differentiate into PGCLCs or gonocyte-like cells that are enclosed within a seminiferous tubule-like structure composed of SCLCs. Furthermore, conditioned medium prepared from TesLCs has a robust inducible activity to differentiate EpiLCs into PGCLCs. Our results demonstrate conditions for in vitro reconstitution of a testicular environment from ESCs and provide further insights into the generation of sperm entirely in xeno-free culture.