In developing ovarian follicles, the regulation of cell proliferation and differentiation is tightly coordinated. Precisely how this coordination is achieved is unknown, but recent observations have suggested that molecules emitted by the oocyte are involved in the process. The newly discovered oocyte-specific growth factor, bone morphogenetic protein-15 (BMP-15), is one such molecule. At present, nothing is known about the target cells and biological functions of BMP-15. To fill this gap in our knowledge, recombinant BMP-15 and its antibody were produced and used to determine BMP-15 expression and bioactivity. BMP-15 mRNA and protein were shown to be co-expressed in oocytes throughout folliculogenesis, supporting the idea that BMP-15 is a physiological regulator of follicle cell proliferation and/or differentiation. To test this, we used primary cultures of rat granulosa cells (GCs). We found that BMP-15 is a potent stimulator of GC proliferation, and importantly, the mitogenic effect was follicle-stimulating hormone (FSH)-independent. By contrast, BMP-15 alone had no effect on steroidogenesis. However, it produced a marked decrease in FSH-induced progesterone production, but had no effect on FSH-stimulated estradiol production. This result indicates that BMP-15 is a selective modulator of FSH action. In summary, this study identifies GCs as the first target cells for BMP-15. Moreover, it identifies the stimulation of GC proliferation and the differential regulation of two crucial steroid hormones as the first biological functions of BMP-15. Significantly, BMP-15 is the first growth factor that can coordinate GC proliferation and differentiation in a way that reflects normal physiology.