The fate of a social insect colony is partially determined by its ability to allocate individuals to the caste most appropriate for the requirements for growth, maintenance and reproduction. In some lineages of Pogonomyrmex barbatus, the allocation of individuals to the queen or worker caste is constrained by genotype, a system known as genetic caste determination (GCD). In full-sized GCD colonies, female eggs that are genetically heterozygous for a portion of the genome develop into sterile workers, while homozygotes become reproductively capable queens. Although the population-level consequences of this system have been intensively studied, the proximate mechanisms for GCD remain unknown. To elucidate these mechanisms, we brought newly mated queens into the laboratory and allowed them to establish colonies, nearly half of which produced virgin queens only months after colony founding. We genotyped eggs, workers, and the virgin queens. Our data showed that young colonies actively produce homozygous eggs, demonstrating that queens of GCD colonies use sperm of both lineages to fertilize their eggs. However, homozygous eggs were more frequent in colonies producing virgin queens. These findings suggest that homozygous eggs are pre-determined to become queens and that workers cull homozygous eggs when colonies are not producing queens. Virgin queens produced by young GCD colonies were smaller than field-caught virgin queens, and often had developmental problems. Thus, these offspring represent an intense resource drain for colonies, not a contribution to colony fitness.