In mammalian gonads the somatic cells are pivotal for nurturing the germ cells, determining if an ovary or testis develops from the indifferent gonad, and for producing sex steroid hormones. To identify origins and lineage decisions of somatic cells, we examined 80 bovine fetal ovaries with crown-rump-length 3.2 - 104 cm (63 - 296 gestational days) and identified a novel cell type, termed GREL (Gonadal Ridge Epithelial-Like cells). We cultured and clonally isolated GREL cells and conducted microarray analysis to identify markers. Using these and other cell markers (n = 26) we conducted immunohistochemistry and electron microscopy and chronologically tracked all somatic cells during development. We showed that the gonadal ridge/ovarian primordium is formed by proliferation of GREL cells originating from the mesonephric surface epithelium. At this stage the primordium is not covered by a classical surface epithelium. Primordial germ cells (PGCs) migrate into the primordium and stroma from the underlying mesonephros penetrates the primordium, thus partitioning the developing ovary into irregularly-shaped ovigerous cords composed of GREL cells and PGCs/oogonia and separated from the stroma by a basal lamina. The penetrating stroma contains capillaries and associated sub-endothelial basal lamina. As the stroma penetrates further to just below the superficial layers of GREL cells, it expands laterally, leading to the differentiation of GREL cells at the ovarian surface into a mature simple epithelium with an underlying basal lamina. The stroma continues to partition the ovigerous cords, forming follicles that contain an oocyte surrounded by GREL cells. In contrast to prevailing theories we conclude that both granulosa cells and surface epithelium are derived from a common precursor GREL cell. Since thecal cells of growing follicles reside in the stromal compartment they are unlikely to be derived from GREL cells, granulosa cells or the surface epithelium.