An important but poorly understood process in ovarian biology is the transition of the developmentally arrested primordial follicle to the developing primary follicle. Interactions between the epithelial and mesenchymal cells of the follicle are critical for the coordination of ovarian follicle development. The mesenchymal growth factor keratinocyte growth factor (KGF) (i.e., fibroblast growth factor-7) and the epithelial growth factor kit ligand (KITL) are known to interact to coordinate the growth of later-stage antral follicles. The hypothesis tested in the current study is that KGF acts as a mesenchymal factor to promote the primordial to primary follicle transition. A postnatal 4-day-old rat ovary organ culture system was used to investigate the actions of KGF. KGF treatment promoted 65% of follicles to undergo the primordial to primary follicle transition, but only 45% underwent development in control ovaries. Neutralizing antibody for KGF was found to attenuate the stimulatory action of KITL, but neutralizing antibody for KITL was not able to attenuate the stimulatory action of KGF. Further analysis demonstrated that KGF was found to stimulate the expression of KITL (i.e., mRNA levels) by granulosa cells. KITL in turn was found to stimulate the expression of KGF to create a positive feedback loop. Interestingly, KGF expression was localized to selected mesenchymal cells (i.e., precursor theca cells) surrounding the developing primordial follicle. Observations suggest that developing granulosa cells of the primordial follicles produce KITL, which helps recruit precursor theca cells to the follicle; the thecal cells then produce KGF, which acts on the granulosa to amplify KITL expression and support primordial follicle development. KGF appears to be a mesenchymal factor that promotes the primordial to primary follicle transitions.