We have recently reported that bone morphogenetic protein-4 (BMP-4) can inhibit progesterone production by ovine granulosa cells (GCs). Here, we have investigated the underlying mechanisms of this effect in basal as well as in FSH-induced conditions. We have confirmed that treatment with BMP-4 decreased basal GC progesterone secretion and totally abolished FSH-stimulating action. This inhibitory action was associated with a decrease in the expression of cAMP-regulated genes, steroidogenic acute regulatory protein (StAR) and P450 side-chain cleavage (P450 scc) at mRNA and protein levels. However, BMP-4 did not alter basal cAMP production by GCs. In contrast, BMP-4 decreased by half the FSH-induced cAMP production and strongly inhibited cAMP-induced progesterone production. Thus, the inhibitory effect of BMP-4 was exerted both upstream and downstream of cAMP signalling. We next examined the downstream effect, focusing on cAMP-dependent transcription factors, steroidogenic factor-1 (SF-1) and CREB, through the BMP factor signalling intermediary, Smad1. As expected, BMP-4 induced phosphorylation and transcriptional activity of Smad1 in ovine GCs. BMP-4-activated Smad1 did not affect CREB activity but inhibited the transcriptional activity of SF-1 on the canonical SF-1 responsive element. Interestingly, this transcriptional inhibitory mechanism occurred on transfected StAR and P450 scc promoter. Based on these results, we propose that SF-1 is a key target in the inhibitory mechanism exerted by BMP-4 on progesterone synthesis by ovine GCs in culture. Because SF-1 plays an essential role in the differentiation of GCs, our findings could have new implications in understanding the role of BMP family members in the control of ovarian folliculogenesis.