In mammals, the ovarian follicles are regulated at least in part by bone morphogenetic protein (BMP) family members. Dullard (also known as Ctdnep1) gene encodes a phosphatase that suppresses BMP signaling by inactivating or degrading BMP receptors. Here we report that the Col1a1-Cre-induced Dullard mutant mice displayed hemorrhagic ovarian cysts, with red blood cells accumulated in the follicles, resulting in infertility. Cells expressing Cre driven by Col1a1 2.3-kb promoter and their descendants were found in granulosa cells in the ovary and in Sertoli cells in the testis. DullardmRNA was localized to granulosa cells in the ovary. Genes involved in steroid hormone genesis including Cyp11a1, Hsd3b1 and Star were reduced, whereas expression of Smad6 and Smad7, BMP-inducible inhibitory Smads, was up-regulated in the Dullard mutant ovaries. Tamoxifen-inducible Dullard deletion in the whole body using Rosa26-CreER mice also resulted in hemorrhagic ovarian cysts in 2 weeks, which was rescued by administration of LDN-193189, a chemical inhibitor of BMP receptor kinase, suggesting that the hemorrhage in the Dullard-deficient ovarian follicles might be caused by increased BMP signaling. Thus, we conclude that Dullard is essential for ovarian homeostasis at least in part via suppression of BMP signaling.