A single somatic FOXL2 mutation (FOXL2 C134W ) was identified in almost all granulosa cell tumor (GCT) patients. In the pituitary, FOXL2 and Smad3 coordinately regulate activin stimulation of follistatin transcription. We explored whether a similar regulation occurs in the ovary, and whether FOXL2 C134W has altered activity. We show that in primary granulosa cells, GDF-9 and activin increase Smad3-mediated follistatin transcription. In contrast to findings in the pituitary, FOXL2 negatively regulates GDF-9 and activin-stimulated follistatin transcription in the ovary. Knockdown of endogenous FOXL2 confirmed this inhibitory role. FOXL2 C134W displayed enhanced inhibitory activity, completely ablating GDF-9 and activin-induced follistatin transcription. GDF-9 and activin activity was lost when either the smad binding element or the forkhead binding element were mutated, indicating that both sites are required for Smad3 actions. This study highlights that FOXL2 negatively regulates follistatin expression within the ovary, and that the pathogenesis of FOXL2 C134W may involve an altered interaction with Smad3.