Ovarian follicular granulosa cells surround and nurture oocytes, and produce sex steroid hormones. It is believed that during development the ovarian surface epithelial cells penetrate into the ovary and develop into granulosa cells when associating with oogonia to form follicles. Using bovine fetal ovaries (n = 80) we identified a novel cell type, termed GREL for Gonadal Ridge Epithelial-Like. Using 26 markers for GREL and other cells and extracellular matrix we conducted immunohistochemistry and electron microscopy and chronologically tracked all somatic cell types during development. Before 70 days of gestation the gonadal ridge/ovarian primordium is formed by proliferation of GREL cells at the surface epithelium of the mesonephros. Primordial germ cells (PGCs) migrate into the ovarian primordium. After 70 days, stroma from the underlying mesonephros begins to penetrate the primordium, partitioning the developing ovary into irregularly-shaped ovigerous cords composed of GREL cells and PGCs/oogonia. Importantly we identified that the cords are always separated from the stroma by a basal lamina. Around 130 days of gestation the stroma expands laterally below the outermost layers of GREL cells forming a sub-epithelial basal lamina and establishing an epithelial-stromal interface. It is at this stage that a mature surface epithelium develops from the GREL cells on the surface of the ovary primordium. Expansion of the stroma continues to partition the ovigerous cords into smaller groups of cells eventually forming follicles containing an oogonium/oocyte surrounded by GREL cells, which become granulosa cells, all enclosed by a basal lamina. Thus in contrast to the prevailing theory, the ovarian surface epithelial cells do not penetrate into the ovary to form the granulosa cells of follicles, instead ovarian surface epithelial cells and granulosa cells have a common precursor, the GREL cell.