During early pregnancy, placentation occurs in a relatively hypoxic environment that is essential for appropriate embryonic development. Intervillous blood flow increases around 10 to 12 weeks of gestation and results in exposure of trophoblast cells to increased oxygen tension. Before this time, low oxygen appears to prevent trophoblast differentiation toward an invasive phenotype. Using human villous explants of 5–8 weeks’ gestation, we found that low oxygen tension triggered trophoblast proliferation, fibronectin synthesis, α₅ integrin expression, and gelatinase A activity. These biochemical markers were barely detectable under oxic conditions. We therefore examined the placental expression of hypoxia-inducible factor-1 (HIF-1), a master regulator of oxygen homeostasis, and determined that expression of HIF-1α subunit during the first trimester of gestation parallels that of TGFβ₃, an inhibitor of extravillous trophoblast differentiation. Expression of both molecules is high in early pregnancy and falls around 9 weeks of gestation, when placental pO₂ levels are believed to increase. Increasing oxygen tension induced a similar decrease in expression in cultured explants. Moreover, antisense inhibition of HIF-1α expression in hypoxic explants inhibited expression of TGFβ₃, arrested cell proliferation, decreased α₅ expression and gelatinase A activity, and triggered biochemical markers of an invasive trophoblast phenotype such as α₁ integrin and gelatinase B expression. These data suggest that the oxygen-regulated early events of trophoblast differentiation are in part mediated by TGFβ₃ through HIF-1 transcription factors.