According to the hypothesis of progesterone-mediated interhemispheric decoupling (Hausmann and Güntürkün, 2000), functional cerebral asymmetries (FCAs), which are stable in men and change during the menstrual cycle in women, are generated by interhemispheric inhibition of the dominant on the nondominant hemisphere. The change of lateralization during the menstrual cycle in women might indicate that sex hormones play an important role in modulating FCAs. We used functional magnetic resonance imaging to examine the role of estradiol in determining cyclic changes of interhemispheric inhibition. Women performed a word-matching task, while they were scanned twice during the cycle, once during the menstrual and once during the follicular phase. By use of a connectivity analysis we found that the inhibitory influence of left-hemispheric language areas on homotopic areas of the right hemisphere is strongest during the menses, resulting in a pronounced lateralization. During the follicular phase, due to rising estradiol levels, inhibition and thus functional cerebral asymmetries are reduced. These results reveal a powerful neuromodulatory action of estradiol on the dynamics of functional brain organization in the female brain. They may further contribute to the ongoing discussion of sex differences in brain function in that they help explain the dynamic part of functional brain organization in which the female differs from the male brain.