Background: Transforming growth factor beta (TGF-β) signaling has been shown to control a large number of critical cellular actions such as cell death, differentiation, and development and has been implicated as a major regulator of placental function. SM10 cells are a mouse placental progenitor cell line, which has been previously shown to differentiate into nutrient transporting, labyrinthine-like cells upon treatment with TGF-β. However, the signal transduction pathway activated by TGF-β to induce SM10 progenitor differentiation has yet to be fully investigated. Materials and Methods: In this study the SM10 labyrinthine progenitor cell line was used to investigate TGF-β induced differentiation. Activation of the TGF-β pathway and the ability of TGF-β to induce differentiation were investigated by light microscopy, luciferase assays, and Western blot analysis. Results and Conclusions: In this report, we show that three isoforms of TGF-β have the ability to terminally differentiate SM10 cells, whereas other predominant members of the TGF-β superfamily, Nodal and Activin A, do not. Additionally, we have determined that TGF-β induced Smad2 phosphorylation can be mediated via the ALK-5 receptor with subsequent transactivation of the Activin response element. Our studies identify an important regulatory signaling pathway in SM10 progenitor cells that is involved in labyrinthine trophoblast differentiation.