Abstract In animals and plants, differential expression of genes on sex chromosomes is widespread and it is usually considered to result from sexually antagonistic selection; however differential expression can also be caused by asymmetrical sequence degeneration in non-recombining sex chromosomes, which has been very little studied. The anther-smut fungus Microbotryum lychnidis-dioicae is ideal to investigate the extent to which differential gene expression is associated with sequence degeneration because: 1) separate haploid cultures of opposite mating types help identify differential expression, 2) its mating-type chromosomes display multiple evolutionary strata reflecting successive events of gene linkage to the mating-type loci, and 3) antagonistic selection is unlikely between isogamous haploid mating types. We therefore tested the hypothesis that differential gene expression between mating types resulted from sequence degeneration. We found that genes showing differential expression between haploid mating types were enriched only on the oldest evolutionary strata of the mating-type chromosomes and were associated with multiple signatures of sequence degeneration. We found that differential expression between mating types was associated with elevated differences between alleles in non-synonymous substitution rates, indels and premature stop codons, transposable element insertions, and altered intron and GC content. Our findings strongly suggest that degenerative mutations are important in the evolution of differential expression in non-recombining regions. Our results are relevant for a broad range of taxa where mating compatibility or sex is determined by genes located in large regions of recombination suppression, showing that differential expression should not be taken as necessarily arising from antagonistic selection. Author Summary Differences between males and females, from morphology to behavior and physiology, are considered to largely reflect differential expression of genes that maximize fitness benefits relative to costs that are specific to one sex. However, there is an unexplored alternative to such ‘sexually antagonistic selection’ to explain differential expression. Reproductive compatibility is often determined by genes located in large non-recombining chromosomal regions, where degenerative mutations are expected to accumulate and may separately affect the expression of alternate alleles of genes. We tested the role of genetic degeneration in determining differential expression between the isogamous haploid mating types of the anther-smut fungus, Microbotryum lychnidis-dioicae , where sexually antagonistic selection is not a confounding factor. We show that differentially expressed genes are highly enriched in the non-recombining mating-type chromosomes, and that they are associated with various forms of degenerative mutations, some of which indicate that the less expressed allele suffers greater mutational effects. Our finding of the role for degenerative mutations in the evolution of differential expression is relevant for a broad range of organisms where reproductive compatibility or sex is determined by genes in regions of suppressed recombination, and shows that differential expression should not be taken as necessarily arising from antagonistic selection.