The murine primordial follicle pool develops largely within 3 days after birth through germline nest breakdown and enclosure of oocytes within pregranulosa cells. The mechanisms that trigger primordial follicle formation likely are influenced by a transition from the maternal to fetal hormonal milieu at the time of birth. High levels of maternal estrogen maintain intact germline nest in fetal ovary, and decrease of estrogen after birth is permissive of follicle formation. In the present study, we measured an increase in neonatal serum follicle-stimulating hormone (FSH), which corresponded to falling estradiol (E₂) levels during the critical window of primordial follicle formation (Postnatal Days 1–3). To determine whether fetal hormones contribute in an active manner to primordial follicle formation, mouse fetal ovaries (17.5 days postcoitus) were cultured in vitro at two concentrations of E₂ (meant to reflect maternal and fetal levels of E₂) and FSH for 6 days. High levels of E₂ (10⁻⁶ M) inhibited germline nest breakdown, and this effect was significantly reduced when fetal ovaries were cultured in the low E₂ concentration (10⁻¹⁰ M). FSH facilitated germline nest breakdown and primordial follicle formation under both high and low E₂ culture conditions. Low E₂ was identified as being more permissive for the effects of FSH on primordial follicle formation by stimulating the up-regulation of Fshr and activin betaA subunit (Inhba) expression, pregranulosa cell proliferation, and oocyte survival. The decrease of E₂ plus the presence of FSH after birth are critical for primordial follicle formation and the expression of oocyte-specific transcription factors (Figla and Nobox) in that inappropriate exposure to FSH or E₂ during follicle formation resulted in premature or delayed primordial folliculogenesis. In conclusion, with the drop of E₂ level after birth, FSH promotes primordial follicle formation in mice by stimulating local activin signaling pathways and the expression of oocyte-specific transcription factors.