To investigate the mechanism by which prolactin (PRL) regulates follicular steroidogenesis in the ovary, we examined the functional roles of PRL in steroidogenesis using rat oocyte/granulosa cell coculture and focusing on the bone morphogenetic protein (BMP) system. The expression of long and short forms of PRL receptor (PRLR) were detected in both oocytes and granulosa cells, and PRL effectively up-regulated PRLR expression in granulosa cells in the presence of FSH. PRL suppressed FSH-induced estradiol production and increased FSH-induced progesterone production in granulosa cells. The PRL effects on FSH-induced progesterone were blocked by coculture with oocytes, implying roles of oocyte-derived factors in suppression of progesterone production in PRL-exposed granulosa cells. In accordance with the data for steroids, FSH-induced aromatase expression was suppressed by PRL, whereas FSH-induced steroidogenic acute regulatory protein, P450scc (P450 side-chain cleavage enzyme), and 3β-hydroxysteroid dehydrogenase type 2 levels were amplified by PRL. However, forskolin- and N(6),O(2)-dibutyryl cAMP-induced steroid levels and FSH- and forskolin-induced cAMP were not affected by PRL, suggesting that PRL action on FSH-induced steroidogenesis was not due to cAMP-protein kinase A regulation. Treatment with a BMP-binding protein, noggin, facilitated PRL-induced estradiol reduction, and noggin increased PRL-induced progesterone production in FSH-treated granulosa cells cocultured with oocytes, suggesting that endogenous BMPs reduce progesterone but increase estradiol when exposed to high concentrations of PRL. PRL increased the expression of BMP ligands in oocyte/granulosa cell coculture and augmented BMP-induced phosphorylated mothers against decapentaplegic 1/5/8 signaling by reducing inhibitory phosphorylated mothers against decapentaplegic 6 expression through the Janus kinase/signal transducer and activator of transcription (STAT) pathway. In addition to STAT activation, PRL enhanced FSH-induced MAPK phosphorylation in granulosa cells, in which ERK activation was preferentially involved in suppression of FSH-induced estradiol. Furthermore, noggin treatment enhanced PRLR signaling including MAPK and STAT. Considering that BMPs suppressed PRLR in granulosa cells, it is likely that the BMP system in growing follicles plays a key role in antagonizing PRLR signaling actions in the ovary exposed to high concentrations of PRL.