The two principal functions of ovarian follicles are developmental and endocrine. The cumulus cells surrounding the oocyte are specialized to serve the development of the oocyte and steroidogenesis is a principal role of mural granulosa cells that line the follicle wall. The findings in this report demonstrate that oocytectomy or treatment with an inhibitor of SMAD2/3 activation results in decreased cumulus marker mRNA transcript levels and allows FSH to induce mural marker transcripts in cumulus cells. In addition, SMAD2/3 signaling is involved in enabling cumulus expansion and EGF-induced increases in Ptx3, Ptgs2 and Has2 mRNA levels. By contrast, follicle-stimulating hormone (FSH) stimulated expression of mural transcripts, but suppressed levels of cumulus transcripts. Thus, FSH and oocyte-stimulated SMAD2/3 signaling establish opposing gradients of influence in the follicle. These specify the mural and cumulus granulosa cell phenotypes that are pivotal for appropriate endocrine function and oocyte development.