Cytotrophoblasts, specialized placental cells, proliferate early in pregnancy and then differentiate into tumor-like cells that establish blood flow to the placenta by invading the uterus and its vasculature. In this study, cytotrophoblasts cultured under hypoxic conditions (2 percent oxygen), mimicking the environment near the uterine surface before 10 weeks of gestation, continued proliferating and differentiated poorly. When cultured in 20 percent oxygen, mimicking the environment near uterine arterioles, the cells stopped proliferating and differentiated normally. Thus, oxygen tension determines whether cytotrophoblasts proliferate or invade, thereby regulating placental growth and cellular architecture.