Immature hypophysectomized rats were injected with 2mg of diethylstilbestrol to increase granulosa cell numbers and with 20 IU of PMS to stimulate ovarian growth. Steroid 17 alpha-hydroxylase activity of cultured granulosa cell, harvested from mature follicles 48 h after injection of PMS, was demonstrated using a tritium exchange assay with 17 alpha 3H-pregneneolone as substrate. For comparison, aromatase activity of the same cells was examined by a similar assay using 1 beta 3H-testosterone as the substrate. The activities of the two enzymes were similar when expressed in terms of the amount of substrate converted per unit time. While an NADPH generating system in the incubation medium was essential for demonstrating any hydroxylase activity, 10-15% of the total aromatase activity could be found without added cofactor. Attempts to alter hydroxylase activity of granulosa cells by inclusion of LH, FSH or prolactin in the incubation medium were unsuccessful. However, activity could be change by prostaglandins (PG) or agents which can alter PG synthesis. Activity was increased by low concentrations of phospholipase A2 (PLA2), histamine, and arachidonic acid (AA). Large doses of PLA2, or AA, were inhibitory. PGE2, but not PGF2 alpha, increased, while indomethacin decreased, hydroxylase activity. The results clearly indicate that granulosa cells in the rat have a potent 17-hydroxylase system and therefore do not support the widely held contention that lack of this enzyme is one of the bases for the need for two kinds of cells for ovarian estrogen production.