During placental development, human cytotrophoblast cells can differentiate to either villous syncytiotrophoblast cells or invasive extravillous trophoblast cells. We hypothesize that oxygen tension plays a critical role in determining the pathway of cytotrophoblast differentiation. A highly purified preparation of cytotrophoblast cells from human third trimester placenta was cultured for 5 days in either 20% or 1% oxygen tension. The cells incubated at 20% oxygen formed a syncytium as determined by immunohistochemistry using an anti-desmosomal protein antibody that identifies cell membranes. In addition, the mRNA was markedly induced for syncytin, a glycoprotein shown to be essential for syncytiotrophoblast formation, and for human placental lactogen (hPL), which is a specific marker for syncytiotrophoblast cells. In contrast, the cell incubated at 1% oxygen tension did not fuse by morphologic analysis and did not express syncytin or hPL mRNA. However, these cells expressed abundant amounts of HLA-G, a specific marker for extravillous trophoblast cells, which was not seen in cells incubated at 20% oxygen tension. These results suggest that low oxygen tension directs differentiation along the extravillous trophoblast cell pathway while greater oxygen tension directs differentiation along the villous trophoblast cell pathway.