The polyhomeotic (ph) gene of Drosophila is a member of the Polycomb group (Pc-G) genes, which are required for maintenance of a repressed state of homeotic gene transcription, which stabilizes cell identity throughout development. The ph gene was recovered in the course of a gain-of-function screen aimed at identifying genes with a role during ovarian follicle formation in Drosophila, a process that involves coordinated proliferation and differentiation of two cell lineages, somatic and germline. Subsequent analysis revealed that ph loss-of-function mutations lead to production of follicles with greater or fewer than the normal number of germ cells associated with reduced proliferation of somatic prefollicular cells, abnormal prefollicular cell encapsulation of germline cysts and an excess of both interfollicular stalk cells and polar cells. Clonal analysis showed that ph function for follicle formation resides specifically in somatic cells and not in the germline. This is thus the first time that a role has been shown for a Pc-G gene during Drosophila folliculogenesis. In addition, we tested mutations in a number of other Pc-G genes, and two of them, Sex combs extra (Sce) and Sex comb on midleg (Scm), also displayed ovarian defects similar to those observed for ph. Our results provide a new model system, the Drosophila ovary, in which the function of Pc-G genes, distinct from that of control of homeotic gene expression, can be explored.