Scientific criticism of the research and theory has come from John Bancroft, Jaimie Veale, Larry Nuttbrock, Charles Allen Moser, and others who argue that the theory is poorly representative of MtF transsexuals, reduces gender identity to a matter of attraction, is non-instructive, and that the research cited in support of the theory has inadequate control groups or is contradicted by other data. Supporters of the theory include J. Michael Bailey, Anne Lawrence, James Cantor, and others who argue that there are significant differences between the two groups, including sexuality, age of transition, ethnicity, IQ, fetishism, and quality of adjustment.

The theory has been the subject of protests in the transsexual and larger LGBT community, although it has its supporters. The issues with Blanchard's work were again the subject of criticism with the publication of Bailey's The Man Who Would Be Queen in 2003. In 2005, Blanchard distanced himself from Bailey's affirmation of the scientific certainty of the etiology.

The early history of the study of transsexualism is sparse; however, the concept of a categorization of transsexuals can be seen as early as 1923 with the work of Magnus Hirschfeld. In 1966, Harry Benjamin wrote that researchers of his day thought that attraction to men, as a woman was the factor that distinguished a transvestite from a transsexual. In 1980 in the DSM III, a new diagnosis was introduced, that of "302.5 Transsexualism" under "Other Psychosexual Disorders". This was an attempt to provide a diagnostic category for a gender identity disorders. The diagnostic category, "Transsexualism", was for gender dysphoric individuals who demonstrated at least two years of continuous interest in transforming their physical and social gender status. The subtypes were 1. asexual, 2. homosexual (same anatomic sex), 3. heterosexual (other anatomic sex) and 0. unspecified. This was removed in the DSM IV, in which Gender Identity Disorder replaced transsexualism. Previous taxonomies, or systems of categorization, used the terms "classic transsexual" or "true transsexual," terms once used in differential diagnoses.

In 1982, Kurt Freund reported evidence that there exist two types of cross-gender identity in male-to-female transsexuals, coined the term "homosexual transsexual" and hypothesized that gender dysphoria in "homosexual males" (male-to-female transsexuals attracted to men) is different from gender dysophoria in heterosexual males. His protege, Ray Blanchard notes that "Freund, perhaps for the first time of any author, employed a term other than 'transvestism' to denote erotic arousal in association with cross-gender fantasy."

Blanchard's observations at the Clarke Institute began with four types of male transsexuals based on their sexual orientation relative to their sex assigned at birth: homosexual, heterosexual, bisexual, and asexual (i.e., transsexuals attracted to men, women, both, or neither, respectively.) Blanchard conducted a series of studies of biological males with gender dysphoria, including male-to-female transsexuals, concluding that there exist two distinct types. One type of gender dysphoria/transsexualism manifests itself in individuals who are exclusively attracted to men, whom Blanchard referred to as homosexual transsexuals, adopting Freund's terminology The other type includes those who are attracted to females (gynephilic), attracted to both males and females (bisexual), and attracted to neither males nor females (analloerotic or asexual); Blanchard referred to this latter set collectively as the non-homosexual transsexuals. Blanchard claims that the non-homosexual transsexuals (but not the homosexual transsexuals) exhibit autogynephilia, which he defined as a paraphilic interest in having female anatomy.

Autogynephilia ( /ˌɔːtoʊˌɡaɪnəˈfɪliə/; from Greek “αὐτό-” (self), “γυνή” (woman, though the stem is actually “γυναικ-”.) and “φιλία” (love) — "love of oneself as a woman") is a term coined in 1989 by Ray Blanchard, to refer to "a man's paraphilic tendency to be sexually aroused by the thought or image of himself as a woman." Alternative terms proposed for this notion include automonosexuality, eonism, and sexo-aesthetic inversion. The DSM-IV-TR includes an essentially equivalent definition, and recognizes autogynephilia as a common occurrence in the transvestic fetishism disorder, but does not classify autogynephilia as a disorder by itself. The analogous term autoandrophilia refers to a woman's tendency to be sexually aroused by the thought or image of herself as a man. It classified as a type of transvestic fetishism in a proposed revision to the DSM-5. (Blanchard has served on the gender dysphoria sub-working group for the DSM-IV and of the paraphilia sub-working group for the DSM-5.)

Autogynephilia is most notable for its use in Blanchard's taxonomy to explain the presence of gender dysphoria in non-homosexual (gynephilic) male-to-female transsexuals, in contrast to the gender dysphoria observed in homosexual (androphilic) transsexuals. Autogynephilia has also been suggested to pertain to romantic love as well as to sexual arousal patterns. While Blanchard claims that autogynephilia does not exist in natal (from birth) women, Veale et al. (2008) and Moser (2009) report that it does exist in natal women at rates close to or equal to that of non-homosexual transsexuals. This is controversial.

Blanchard provides case examples to illustrate the autogynephilic sexual fantasies that people reported:

Philip was a 38-year-old professional man referred to the author's clinic for assessment....Philip began masturbating at puberty, which occurred at age 12 or 13. The earliest sexual fantasy he could recall was that of having a woman's body. When he masturbated, he would imagine that he was a nude woman lying alone in her bed. His mental imagery would focus on his breasts, his vagina, the softness of his skin, and so on—all the characteristic features of the female physique. This remained his favorite sexual fantasy throughout his life.

According to Blanchard, "An autogynephile does not necessarily become sexually aroused every time he pictures himself as female or engages in feminine behavior, any more than a heterosexual man automatically gets an erection whenever he sees an attractive woman. Thus, the concept of autogynephilia—like that of heterosexuality, homosexuality, or pedophilia—refers to a potential for sexual excitation" [emphasis in original].

Blanchard classified four subtypes of autogynephilic sexual fantasies, but noted that "All four types of autogynephilia tend to occur in combination with other types rather than alone."

• Transvestic autogynephilia: arousal to the act or fantasy of wearing women's clothing
• Behavioral autogynephilia: arousal to the act or fantasy of doing something regarded as feminine
• Physiologic autogynephilia: arousal to fantasies of female-specific body functions
• Anatomic autogynephilia: arousal to the fantasy of having a woman's body, or parts of one.

There also exist biological males who report being sexually aroused by the image or idea of having some but not all female anatomy, such as having female breasts but retaining their male genitalia; Blanchard referred to this phenomenon as partial autogynephilia.

In Blanchard's taxonomy, non-homosexual biological males (Kinsey Scale 0-4) with gender identity disorder exhibit autogynephilia and are either attracted to women, both women and men, or are asexual. Homosexual transsexuals are attracted exclusively to men and do not exhibit autogynephilia.

Support for the theory comes from a wide range of demographic and psychological aspects of the subjects studied Blanchard's practice in the 1980s. Criticism of the theory is generally focused in two categories: the use of the terms "homosexual" and "non-homosexual" to refer to transsexuals by their sex-of-birth, and the data underlying the theory itself.