Nodal has been thought to be an embryo-specific factor that regulates development, but nodal is also expressed in the mouse placenta beginning at midgestation, specifically in the spongiotrophoblasts. In an insertional null nodal mutant, not only is embryonic development disrupted, but mouse placental development is also grossly altered with the loss of the diploid spongiotrophoblasts and labyrinth and an expansion of the polyploid giant cell layer. A hypomorphic mutation in nodal results in an expansion of the giant cell and spongiotrophoblast layers, and a decrease in labyrinthine development. Expression of nodal in trophoblast cell cultures is sufficient to inhibit trophoblast giant cell differentiation, demonstrating that nodal can act directly on trophoblasts. The mechanism of nodal action includes the inhibition of junB gene transcription. These results suggest that nodal may be involved in redirecting trophoblast fate towards the midgestational expansion of the labyrinth region while maintaining the thin layer of trophoblast giant cells and the underlying layer of spongiotrophoblasts that form the boundary between the maternal and extraembryonic compartments.