Premature ovarian failure and infertility are major side effects of chemotherapy treatments in young cancer patients. A more thorough understanding of the mechanism behind chemotherapy-induced follicle loss is necessary to develop new methods to preserve fertility in these patients. We show that the alkylating agent cyclophosphamide (Cy) activates the growth of the quiescent primordial follicle population in mice, resulting in loss of ovarian reserve. Despite the initial massive apoptosis observed in growing, though not in resting, follicles of Cy-treated mice, differential follicle counts demonstrated both a decrease in primordial follicles and an increase in early growing follicles. Immunohistochemistry showed that granulosa cells were undergoing proliferation. Analysis of the phosphatidylinositol 3-kinase signaling pathway demonstrated that Cy increased phosphorylation of proteins that stimulate follicle activation in the oocytes and granulosa cells. Coadministration of an immunomodulator, AS101, reduced follicle activation, thereby increasing follicle reserve and rescuing fertility after Cy, and also increased the efficacy of Cy against breast cancer cell lines. These findings suggest that the mechanism in Cy-induced loss of ovarian reserve is accelerated primordial follicle activation, which results in a "burnout" effect and follicle depletion. By preventing this activation, AS101 shows potential as an ovarian-protective agent, which may be able to preserve fertility in female cancer patients.