The White House order affects schools and universities that receive federal funds
Eleven US states have filed a lawsuit challenging the Obama administration's recent efforts to expand the rights of transgender students.
The White House issued a directive this month, mandating that all students be allowed to use the toilet that matches their gender identity.
The states called the order "a massive social experiment".
Several US states have recently enacted laws that limit the rights of transgender people.
The Obama administration has threatened to withhold federal education aid to states that do not comply with the directive.
Texas, one of the conservative states challenging the directive, stands to lose $10bn education funding.
"The Obama administration is trampling the United States Constitution,'' Texas Governor Gregg Abbott said.
At the scene: Aleem Maqbool in Fort Worth, Texas
A recent Fort Worth school board meeting became heated after discussing transgender issues
Fort Worth, Texas, has become one of the fiercest battlegrounds in this fight over which toilets transgender pupils can use.
Officials there have issued guidance to schools saying transgender students should be able to use the toilet that matches their gender identity.
But there has been a backlash from some parents. We attended one meeting where people with children attending schools in the district told us they felt the new guidelines endangered public safety. Others were concerned about the Obama administration, which they said had not consulted with parents enough.
Many, though, admitted that they felt that change on issues like same-sex marriage had happened too fast and was against their beliefs.
But they said they would fight back when it came to transgender rights, and supported their state in standing against the White House.
The lawsuit also includes Alabama, Arizona, Georgia, Louisiana, Oklahoma, Tennessee, Utah, West Virginia and Wisconsin.
It accuses the government of overstepping its powers by doing what should be left up to Congress or individual states.
The Obama administration issued the new guidelines after North Carolina passed a law requiring transgender people to use public toilets that correspond with the sex listed on their birth certificate.
The US Justice Department challenged the law, which it calls discriminatory.
Its supporters said allowing transgender people to choose their toilet could lead to women and children being attacked.
Efforts to limits the rights of transgender people have been met with protests
They said they feared that men could pose as transgender people and use legal protections as a cover.
The Justice Department and others have said that threat is practically non-existent.
"There is no room in our schools for discrimination," said US Attorney General Loretta Lynch.
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