The origin of follicle (i.e., pregranulosa) cells that become the somatic component of primordial follicles is obscure. In addition, information regarding the structural changes that accompany the concomitant regression of ovigerous cords and the appearance of primordial follicles is lacking. In the present study, ovine ovaries collected at frequent time intervals between Day 38 and Day 100 of fetal life were examined by light and electron microscopy. To gain new information regarding the origin of follicular cells, incorporation of 5-bromo-2′-deoxyuridine was used to identify proliferating cells at selected stages of development. Based on the location and identity of proliferating cells, apoptotic cells, and sequential changes in histoarchitecture, we hypothesize 1) that most (i.e., >95%) of the granulosal cells in newly formed primordial follicles originate from the ovarian surface epithelium; 2) that the sequential events leading to follicle formation take place entirely within ovigerous cords, with the first follicles forming at the interface of the cortex and medulla; and 3) that the loss (i.e., >75%) of germ cells, but not of somatic cells, within the ovigerous cords is a means by which each surviving oocyte gains additional pregranulosal cells before follicle formation. Conceptual models detailing the chronology of developmental events involved in the formation of primordial follicles in sheep are discussed.