In addition to a stimulatory effect on FSH production by the pituitary gland, activin is thought to have a paracrine or autocrine role in follicular development in the ovary, where it is produced. Recently, we established a human ovarian granulosa tumor cell line, KGN, which possesses in vivo characteristics of granulosa cells, namely the expression of functional FSH receptors and cytochrome P-450 aromatase. Here, we have demonstrated the activin signaling pathway and its role in KGN cells. A series of transient transfection experiments revealed that activin type IB receptor (ActRIB) is an essential component of the activin signaling pathway in KGN cells. Smad2 was found to act downstream of ActRIB as an intracellular signal transmitter. Smad7, but not Smad6, was an inhibitory Smad in the pathway. Finally, we show that FSH receptor expression and cytochrome P-450 (P-450) aromatase activity was up-regulated by activin stimulation through ActRIB in KGN cells. These results show that we have clarified the signaling mechanisms and the roles of activin in the human granulosa cell line, KGN. Activin signaling mediated by ActRIB-Smad2 system in the ovary may thus be essential for the regulation of follicular differentiation.