In rodents, the formation of ovarian follicles occurs after birth. In recent years, several factors required for follicular assembly and the growth of the newly formed follicles have been identified. We now describe a novel gene, Fxna, identified by differential display in the neonatal rat ovary. Fxna encodes an mRNA of 5.4 kb, and a protein of 898 amino acids. Fxna is a transmembrane metallopeptidase from family M28, localized to the endoplasmic reticulum. In the ovary, Fxna mRNA is expressed in granulosa cells; its abundance is maximal 48 hours after birth, i.e. during the initiation of follicular assembly. Reducing Fxna mRNA levels via lentiviral-mediated delivery of short hairpin RNAs to neonatal ovaries resulted in substantial loss of primordial, primary and secondary follicles, and structural disorganization of the ovary, with many abnormal follicles containing more than one oocyte and clusters of somatic cells not associated with any oocytes. These abnormalities were not attributable to either increased apoptosis or decreased proliferation of granulosa cells. The results indicate that Fxna is required for the organization of somatic cells and oocytes into discrete follicular structures. As an endoplasmic reticulum-bound peptidase, Fxna may facilitate follicular organization by processing precursor proteins required for intraovarian cell-to-cell communication.