This article is a product of the intersection of digital sociology, law, ethics, and gender studies and discusses gender identity in the metaverse with a focus on the current legal loopholes and social obstacles that disproportionately impact non-cisgender people. First, we explain how interaction and avatar technology builds identity expression on platforms such as ZEPETO and VRChat. Research indicates that sophisticated avatar customization and applications such as voice changers enable users to navigate and validate their gender identities offline. However, most mainstream virtual environments limit gender choices, constrain subtle expression, and expose the users, especially women and gender-diverse people, to virtual harms such as misgendering, harassment, and virtual sexual assault. These harms, although digital, often have real psychological effects, but fall into grey zones of jurisdiction and enforcement. Second, we evaluate shortcomings of existing legal and regulatory structures, from tort law and data protection laws to intellectual property norms and their insufficiency in tackling the specific varieties of harm in virtual environments. The findings reveal grave inconsistencies in the application of privacy, consent, and responsibility in immersive environments. Most users complain that they have few remedies through ineffective internal complaint mechanisms or the unavailability of a court remedy. In light of these insights, the research proposes certain legal reforms and international policy coordination, as well as platform inclusive design guidelines, including varying gender options for avatars, voice and identity-sensitive options, safety-by-design mediated tools, and public education. These efforts seek to ultimately develop digital realms that recognize gender identity as a class protected by the law and foster and advance equality and safety across the metaverse.