The luteinizing hormone receptor (LHCGR) is expressed at low levels in mural granulosa cells and cumulus cells of antral follicles and is induced dramatically in granulosa cells but not in cumulus cells by follicle-stimulating hormone (FSH). Therefore, we hypothesized that FSH not only activates transcription factors controlling Lhcgr expression but also alters other events to permit and enhance Lhcgr expression in granulosa cells but not in cumulus cells. In granulosa cells, the level of DNA methylation in the Lhcgr promoter region was significantly decreased by equine chorionic gonadotropin (eCG) in vivo. However, in cumulus cells, hypermethylation of the Lhcgr promoter remained after eCG stimulation. eCG induced estrogen production from testosterone (T) and retinoic acid (RA) synthesis in granulosa cells. When either T or RA in the presence or absence of FSH was added to granulosa cell cultures, the combined treatment with FSH and RA induced demethylation of Lhcgr-promoter region and Lhcgr expression. FSH-dependent RA synthesis was negatively regulated by coculture of granulosa cells with denuded oocytes, suggesting that oocyte-secreted factors downregulate RA production in cumulus cells where Lhcgr expression was not induced. Strikingly, treatment of cultured cumulus-oocyte complexes with a SMAD inhibitor, SB431542, significantly induced RA production, demethylation of Lhcgr-promoter region, and Lhcgr expression in cumulus cells. These results indicate the demethylation of the Lhcgr-promoter region is mediated, at least in part, by RA synthesis and is a key mechanism regulating the cell type-specific differentiation during follicular development.