The study reports the development of a serum-free culture system for sheep thecal cells that overcomes the problem of spontaneous luteinization and the use of this system to study the control of proliferation and differentiation. Theca cells were isolated by enzymatic dispersion from small follicles (< 3.5 mm) and the effect of plating densities (25-100 x 10(3) cells per well), LH (0.001-100 micrograms l-1), insulin (1-5000 micrograms l-1), insulin-like growth factor I (IGF-I) analogue (1-100 micrograms LR3-IGF-I l-1) and epidermal growth factor (EGF) (0.005-50 micrograms l-1) on the number of cells and androstenedione and progesterone production were determined. Plating density had a marked effect on the pattern of hormone secretion with densities between 50 and 75 x 10(3) cells per well resulting in a high androstenedione: progesterone ratio at optimum doses of LH (0.1 micrograms l-1: P < 0.001). In the first 48 h, the production of both androstenedione and progesterone was stimulated in a dose-dependent manner by LH (P < 0.001). However, the production of androstenedione was ten times higher than that of progesterone and was more sensitive to LH (ED50 value 0.08 micrograms l-1 for androstenedione and 1 microgram l-1 for progesterone). From 48-144 h of culture higher doses of LH (> 1 ng ml-1) inhibited androstenedione (P < 0.001) and stimulated progesterone (P < 0.001) and resulted in a marked change in cell morphology, thus reflecting both functional and morphological luteinization. At optimum doses of LH, both insulin and IGF stimulated cell proliferation (P < 0.001) and androstenedione production (P < 0.001) in a dose responsive manner and there was a significant (P < 0.001) interaction between them. In contrast, both insulin and IGF-I inhibited (P < 0.001) progesterone production in a dose responsive manner. EGF stimulated cell proliferation (P < 0.001) and progesterone production (P < 0.001), but inhibited androstenedione production (P < 0.001), in a dose responsive manner. In conclusion, this culture system exhibits physiologically relevant responses to known in vivo modulators of follicle development. The biphasic nature of the theca cell response to LH emphasises the exquisite sensitivity of theca cells to LH stimulation and highlights the importance of dose-response relationships in the gonadotrophic control of ovarian function.