The hedgehog (HH) signaling pathway plays an essential role in the Drosophila ovary, regulating cell proliferation and differentiation, but a role in the mammalian ovary has not been defined. Expression of components of the HH pathway in the mouse ovary and effects of altering HH signaling in vitro were determined. RT-PCR analyses show developmentally regulated expression of sonic (Shh), indian (Ihh) and desert (Dhh) HH in the ovary. Expression is detected in whole ovary, granulosa cells, and corpora lutea. The mRNAs for the two receptors, patched homolog 1 and 2 (Ptch1, Ptch2), and the signal transducer, smoothened (Smo), are also expressed. Immunohistochemistry using an antibody that detects all three HH ligands demonstrated HH protein primarily in granulosa cells of follicles from primary to antral stages of development. Follicles also stained for PTCH1 and SMO in both granulosa and theca cells. Treatment of cultured preantral follicles and granulosa cells with recombinant SHH increased growth and proliferation while treatment with the HH pathway inhibitor, cyclopamine, had no effect. Therefore, activation of HH signaling can increase cell proliferation and follicle growth but is not essential for these processes in vitro. Treatment of granulosa cells with SHH increased levels of mRNA for Gli1, a transcriptional target of HH signaling, while cyclopamine decreased expression. SHH had no effect on production of progesterone by cultured granulosa cells, while cyclopamine increased progesterone production. The results demonstrate a functional HH pathway in the follicle and identify granulosa cells as at least one of the potential targets of HH signaling.