During ovarian folliculogenesis granulosa cells divide while in contact with stromal cells and other granulosa cells. Following ovulation, however, they cease dividing and differentiate into large luteal cells. When cultured in monolayer, granulosa cells spontaneously differentiate into luteal cells, thus confounding the study of the follicular functions of granulosa cells in vitro, such as cell division. We have found that bovine granulosa cells were able to divide in an anchorage-independent culture system consisting of soft agar and an overlay of methylcellulose. The cells grew in colonies and retained the ultrastructural features of follicular granulosa cells. They also secreted an extracellular matrix with features of basal lamina. The granulosa cells responded to basic fibroblast growth factor (bFGF) in a dose- and time-dependent manner, with a three- to five-fold increase (at 50 ng bFGF/ml for 14 days) in the level of DNA per dish. This mitogenic effect was inhibited by dibutyryl cAMP (dbcAMP) (1 mM). In the presence of dbcAMP the cells hypertrophied considerably, did not secrete extracellular matrix, and developed the ultrastructural features of luteal cells. They also secreted threefold more progesterone. This system offers the ability to study the follicular functions of granulosa cells in culture.