Within 2 days of birth, the mouse ovary is mainly composed of oocytes surrounded by a few pregranulosa cells forming primordial follicles that remain quiescent until they are recruited by intraovarian or other unknown factors to initiate growth of the oocyte and proliferation of the attendant granulosa cells. However, the role of the oocyte in this early development and organization of the follicle is poorly understood. The Dazl knockout (−/−) mouse in which there is total ablation of oocytes in fetal life has allowed us to address this issue. Ovaries from −/− females lack any follicular structure and have no cells positive for either Mullerian inhibiting factor or sulfated glycoprotein-1, indicating a lack of small follicles or corpora lutea. However, by immunocytochemistry, there are cells positive for 3β-hydroxysteroid dehydrogenase, 17α-hydroxylase, and aromatase, indicating the presence of steroidogenically active cells capable of producing estrogen. This was confirmed by the presence of hypertrophied uterine endometrium expressing both estrogen receptor α (ERα) and ERβ together with normal levels of plasma estradiol. In addition, these steroidogenically active cells contain ERβ, inhibin α, andβ B-subunits, and −/− mice have low measurable plasma inhibin A and B levels. The ovarian steroids and inhibins had no significant effect on either plasma or pituitary gonadotropin levels, with significantly (P < 0.01) lower LH and FSH in intact +/+ and +/− females. However, significantly (P < 0.05) increased plasma inhibin B together with significantly (P < 0.05) lower FSH were observed in the +/− females. In conclusion, our data showed that despite oocyte loss in fetal life, the adult ovaries contained steroidogenically active cells capable of producing estradiol and inhibin. Furthermore, in the +/− mice, the enhanced plasma inhibin B implies a role for Dazl protein within the oocyte either from more small follicles or increased inhibin B production from each follicle.