Placental development initially occurs in a low-oxygen (O2) or hypoxic environment. In this report we show that two hypoxia-inducible factors (HIFs), HIF1alpha and HIF2alpha, are essential for determining murine placental cell fates. HIF is a heterodimer composed of HIFalpha and HIFbeta (ARNT) subunits. Placentas from Arnt-/- and Hif1alpha-/- Hif2alpha-/- embryos exhibit defective placental vascularization and aberrant cell fate adoption. HIF regulation of Mash2 promotes spongiotrophoblast differentiation, a prerequisite for trophoblast giant cell differentiation. In the absence of Arnt or Hifalpha, trophoblast stem cells fail to generate these cell types and become labyrinthine trophoblasts instead. Therefore, HIF mediates placental morphogenesis, angiogenesis, and cell fate decisions, demonstrating that O2 tension is a critical regulator of trophoblast lineage determination. This novel genetic approach provides new insights into the role of O2 tension in the development of life-threatening pregnancy-related diseases such as preeclampsia.