Anti-Müllerian hormone is a TGFβ-superfamily member that inhibits primordial follicle activation, induces early preantral follicle atresia, promotes late preantral/early antral growth and inhibits FSH-responses and aromatase expression in antral follicle granulosa cells. Of these diverse actions, the induction of preantral follicle atresia has the greatest effect on the number of developing follicles in the ovary but the reason for this role has not yet been determined. Our research suggests that without substantial amounts of preantral follicle atresia, the ovary would not be able to contain the large number of antral follicles growing rapidly in the follicular phase. AMH released from large follicles appears to be a key regulator, preventing excessive numbers of antral follicles from developing to the antral stage. We also show that most proteolytic cleavage of the inactive precursor form of the protein (proAMH) occurs in the theca and stroma. The AMH in follicular fluid is predominantly the inactive form, with small quantities of cleaved, active form (AMHN,C) that performs the growth-promoting functions of AMH. When the AMH leaves follicular fluid, the majority is converted to the AMHN,C where in high concentrations it performs the inhibitory functions, including suppression of primordial follicle activation and induction of preantral follicle atresia. In this way, AMH can have two divergent functions in the same organ.