The original 'two-cell mechanism' explained the endocrine regulation of follicular oestrogen synthesis and implied paracrine signalling in the follicle wall. It is now known that the CYP17 gene encoding 17-hydroxylase/C17-20-lyase activity crucial to androgen synthesis, is expressed exclusively in thecal cells. 17-Hydroxylase/C17-20-lyase activity is regulated by LH and subject to local modulation by a factor(s) emanating in FSH-stimulated granulosa cells. The FSH receptor gene is expressed exclusively in granulosa cells, where FSH acts directly to induce cytoproliferation and differentiation via cyclic AMP/protein kinase-A mediated post-receptor signalling. Granulosa cells also express androgen receptors, and theca-derived androgen has the potential to modulate locally differentiative responses to FSH. When follicles are recruited to preovulatory development by FSH, their granulosa cells develop LH receptors functionally coupled to aromatase activity and inhibin production. Thereby they simultaneously undertake LH-responsive aromatization and inhibin synthesis. Inhibin has the potential to potently enhance LH-stimulated thecal androgen synthesis. Granulosa-derived inhibin may therefore participate in a paracrine mechanism that locally amplifies androgen synthesis, and hence oestrogen formation, in the preovulatory follicle(s).