TGFβ superfamily proteins, acting via SMAD (Sma- and Mad-related protein)2/3 pathways, regulate placental function; however, the role of SMAD1/5/8 pathway in the placenta is unknown. This study investigated the functional role of bone morphogenetic protein (BMP)4 signaling through SMAD1/5 in terminal differentiation of primary chorionic gonadotropin (CG)-secreting trophoblast. Primary equine trophoblast cells or placental tissues were isolated from day 27-34 equine conceptuses. Detected by microarray, RT-PCR, and quantitative RT-PCR, equine chorionic girdle trophoblast showed increased gene expression of receptors that bind BMP4. BMP4 mRNA expression was 20- to 60-fold higher in placental tissues adjacent to the chorionic girdle compared with chorionic girdle itself, suggesting BMP4 acts primarily in a paracrine manner on the chorionic girdle. Stimulation of chorionic girdle-trophoblast cells with BMP4 resulted in a dose-dependent and developmental stage-dependent increase in total number and proportion of terminally differentiated binucleate cells. Furthermore, BMP4 treatment induced non-CG-secreting day 31 chorionic girdle trophoblast cells to secrete CG, confirming a specific functional response to BMP4 stimulation. Inhibition of SMAD2/3 signaling combined with BMP4 treatment further enhanced differentiation of trophoblast cells. Phospho-SMAD1/5, but not phospho-SMAD2, expression as determined by Western blotting was tightly regulated during chorionic girdle trophoblast differentiation in vivo, with peak expression of phospho-SMAD1/5 in vivo noted at day 31 corresponding to maximal differentiation response of trophoblast in vitro. Collectively, these experiments demonstrate the involvement of BMP4-dependent pathways in the regulation of equine trophoblast differentiation in vivo and primary trophoblast differentiation in vitro via activation of SMAD1/5 pathway, a previously unreported mechanism of TGFβ signaling in the mammalian placenta.