The expression of X-linked inhibitor of apoptosis protein (XIAP), a member of a family of intracellular antiapoptotic proteins, is induced by FSH during follicular development in vivo. Whether the XIAP up-regulation by FSH (100 ng/ml) is a direct action of the gonadotropin and is important in the control of granulosa cell proliferation during follicular growth is unclear. The overall objective of the present study was to examine whether the FSH-induced XIAP expression and granulosa cell proliferation during follicular development is mediated by the secretion and action of intraovarian transforming growth factor α (TGFα). In rat follicles cultured for 2 and 4 days, FSH stimulated estradiol production, TGFα secretion, XIAP expression, and follicular growth. The theca cells are the primary follicular source of FSH-induced TGFα, as indicated by in situ hybridization. Intrafollicular injection of a neutralizing anti-TGFα antibody (50–200 ng/ml; immunoglobulin G as control) or addition of estradiol-antagonist ICI 182780 (0.5–100 nM) to the culture media suppressed FSH-induced XIAP expression and follicular growth. The effect of ICI 182780 could be partially reversed by high concentrations of estrogen (250 and 500 nM). Whereas TGFα (10–20 ng/ml) significantly increased granulosa cell XIAP content and proliferation in primary granulosa cell cultures, FSH alone was ineffective in eliciting the mitogenic response. Our results support the hypothesis that FSH stimulates granulosa cell proliferation via theca TGFα secretion and action in response to increased granulosa cell estradiol synthesis, and that XIAP up-regulation in response to FSH suppresses granulosa cell apoptosis and facilitates FSH-induced follicular growth.