Stanniocalcin is a glycoprotein hormone important in the maintenance of calcium and phosphate homeostasis in fish. Two related mammalian stanniocalcin genes, STC1 and STC2, were found to be expressed in various tissues as paracrine regulators. We have demonstrated the existence of a second stanniocalcin gene in fish, named as fish STC2, with only 30% identity to fish STC1. However, phylogenetic analysis and comparison of the genomic structure of STC genes in vertebrates indicated that STC1 and STC2 genes were likely derived from a common ancestor gene. Based on the prominent expression of mammalian STC1 in the ovary, we tested STC2 expression in rat ovary and the regulation of STC2 expression by gonadotropins. Treatment of immature rats with pregnant mare serum gonadotropin increased STC2 transcripts whereas subsequent treatment with human chorionic gonadotropin suppressed STC2 expression. Real-time PCR analyses further demonstrated that STC2 is mainly expressed in theca layers. In situ hybridization studies also revealed that STC2 is expressed in theca cell layers of antral and preovulatory follicles following gonadotropin stimulation. To elucidate the physiological functions of STC2, recombinant human and fish STC2 proteins were generated and were found to be N-glycosylated homodimers. In cultured granulosa cells, treatment with human or fish STC2 suppressed FSH-induced progesterone, but not estradiol or cAMP, production. The STC2 suppression of progesterone production was associated with the inhibition of FSH-induced CYP11A and 3--hydroxysteroid dehydrogenase expression. Thus, STC2 is a functional homodimeric glycoprotein and theca cell-derived STC2 could play a paracrine role during follicular development.