The ovary plays a major role in women’s health. Ovarian-related diseases are very common and include premature ovarian failure, female infertility, and ovarian cancer. Although the function and physiology of the adult ovary has been investigated in great detail, we know very little about the genes that control its development and early differentiation. We have identified a new key gene, Lgr5 (leucine rich repeat containing G protein coupled receptor 5) that regulates foetal ovarian development. LGR5 as a receptor for R-spondin is involved in the activation of WNT signalling and is a key stem cell factor for homeostasis of adult organs. Here we show that LGR5 is also required during foetal ovarian development. In addition, we have identified marker genes for three different somatic cell types in the foetal ovary; precursor cells that give rise to granulosa cells of the medullary follicles, to granulosa cells of the cortical follicles, and a third cell lineage that possibly differentiates into theca cells. Our findings provide important new insights into early lineage allocation and differentiation in the developing ovary. The identification of cell-type specific markers provides fundamental new tools for the tracking of these lineages to investigate their contribution to normal and pathological development in the mammalian ovary.