The researchers from Prince Henry's Institute of Medical Research in Melbourne, focused on three genes but they suggest other genes possibly also play a part.
Professor Vincent Harley says a DNA analysis from 112 male-to-female transsexual volunteers showed they were more likely to have a longer version of the androgen receptor gene and this genetic difference may cause weaker testosterone signals.
The scientists say biological factors are increasingly implicated in gender identity and they say their research supports a biological basis for how gender identity develops.
Transsexualism carries a tremendous social stigma but Professor Vincent Harley says the research shows that certain brain structures in male-to-female transsexual people are more "female like".
For the study the researchers looked for potential differences in three genes known to be involved in sex development - the androgen receptor, the oestrogen receptor and an enzyme which converts testosterone to oestrogen.
Student Lauren Hare collected blood or saliva from 76 male to female transsexuals from around Australia and 36 from America - when the team compared the DNA from the male to female transsexual participants with 258 controls, a significant link with a long version of the androgen receptor gene and transsexualism was seen.
The team say it is known that longer versions of the androgen receptor gene are associated with less efficient testosterone signalling and this reduction in the action of the male sex hormone may have an effect on gender development in the womb and contributes to the female gender identity of male to female transsexuals.
Researcher Lauren Hare suggests that these genetic differences might reduce testosterone action and under - masculinise the brain during foetal development.
Experts say there was a belief that there was a biological basis to transsexualism which the study, along with earlier research appears to reinforce - earlier studies have indicated in some trans people, that there may be a genetic trigger to the development of an atypical gender identity.
The Australian team collaborated with American scientists whose research on male and female brains suggests genes might interact with hormones and other environmental factors in creating gender identity.
The researchers now hope to extend the study and investigate the three sex steroid genes and other genes involved in androgen-oestrogen function.
The Australian study is the largest genetic study of male to female transsexualism carried out and is published in Biological Psychiatry.