Differentiation and development of steroid-producing cells (SPCs) and folliculogenesis during ovarian differentiation in the Nile tilapia Oreochromis niloticus were immunohistochemically and ultrastructurally examined. Clusters of immunopositive cells (IPCs) against antibodies (ABs) of cholesterol side-chain cleavage cytochrome P450 (P450scc), 3β-hydroxysteroid dehydrogenase (3βHSD), and cytochrome P450aromatase (P450arom) only appeared in the area near blood vessels in the fish ovaries at 50–60 days after hatching (dah). Ultrastructural results showed that differentiation and development of SPCs from undifferentiated to maturation occurred in the area near blood vessels, indicating that it would be the original site of SPCs. At 70–80 dah, IPC clusters invaded the interstices among oocytes at the perinucleolar stage from the area near the blood vessels. IPCs increased in number in the interstices among the previtellogenic oocytes, and some clusters began to enclose the outer thecal layer of the previtellogenic oocytes at 90 dah. The process of folliculogenesis was ultrastructurally observed. SPCs enclosed by fibroblastic cells invaded the interstitial areas among oocytes and some reached the surfaces of oocytes. The upper portions of these elongations opened and began to enclose the outer surfaces of developed oocytes to become thecal layer. Later, newly migrated SPCs reach the thecal layer to become thecal cells. These results indicate that steroid-producing thecal cells originate from the SPCs in the area near blood vessels. After thecal layer formation, an immunopositive reaction against P450arom AB, but not against P450scc or 3β-HSD ABs, appeared first in the granulosa cells enclosing the vitellogenic oocytes at 100 dah. At this time, estrogen production in serum levels rapidly increased. Thus, folliculogenesis could be essential for active production of estrogen in the ovary.