Sexually selected signals of individual dominance have profound effects on access to resources, mate choice and gene flow. However, why such signals should honestly reflect individual quality is poorly understood. Many such signals are known to develop under the influence of testosterone. We conducted an experiment in male house sparrows in which testosterone was manipulated independently during two periods: before the onset of the breeding season and prior to the autumn moult. We then measured the effects of these manipulations on basal metabolic rate and on the size of the chest bib, a sexually selected signal. The results demonstrate that testosterone simultaneously affects both signal development and basal metabolic rate in the house sparrow (Passer domesticus). This evidence, therefore, supports a novel conclusion: that testosterone-dependent signals act as honest indicators of male quality possibly because only high-quality individuals can sustain the energetic costs associated with signal development.