Like many other wrasse species, Thalassoma bifasciatum is a protogynous sequential hermaphrodite; individuals may begin life either as males or females, but females can change sex later in life and become males.

Thalassoma bifasciatum and its congener, the saddle wrasse (T. duperrey) have become important models for understanding the physiological and neurobiological bases of sex change. Sex change can be induced socially in both species by making large females the largest members of social groups. Sex change in experimental pens by saddle wrasses involves complete gonadal transformation with associated decreases in a key steroid hormones (estradiol and 11-ketotestosterone) and steroid hormone synthesizing enzymes in the gonads.