The embryonic origins of ovarian granulosa cells have been a subject of debate for decades. By tamoxifen-induced lineage tracing of Foxl2-expressing cells, we show that descendants of the bipotential supporting cell precursors in the early gonad contribute granulosa cells to a specific population of follicles in the medulla of the ovary that begin to grow immediately after birth. These precursor cells arise from the proliferative ovarian surface epithelium and enter mitotic arrest prior to upregulating Foxl2. Granulosa cells that populate the cortical primordial follicles activated in adult life derive from the surface epithelium perinatally, and enter mitotic arrest at that stage. Ingression from the surface epithelium dropped to undetectable levels by Postnatal Day 7, when most surviving oocytes were individually encapsulated by granulosa cells. These findings add complexity to the standard model of sex determination in which the Sertoli and granulosa cells of the adult testis and ovary directly stem from the supporting cell precursors of the bipotential gonad.