Trophoblast cells are the first lineage to form in the mammalian conceptus and mediate the process of implantation. We report the cloning of a basic helix-loop-helix (bHLH) transcription factor gene, Hxt, that is expressed in early trophoblast and in differentiated giant cells. A separate gene, Hed, encodes a related protein that is expressed in maternal deciduum surrounding the implantation site. Overexpression of Hxt in mouse blastomeres directed their development into trophoblast cells in blastocysts. In addition, overexpression of Hxt induced the differentiation of rat trophoblast (Rcho-1) stem cells as assayed by changes in cell adhesion and by activation of the placental lactogen-I gene promoter, a trophoblast giant cell-specific gene. In contrast, the negative HLH regulator, Id-1, inhibited Rcho-1 differentiation and placental lactogen-I transcription. These data demonstrate a role for HLH factors in regulating trophoblast development and indicate a positive role for Hxt in promoting the formation of trophoblast giant cells.