A number of studies suggest a role for PTHrP and the classical PTH/PTHrP receptor (type I) in one of the first differentiation processes in mouse embryogenesis, i.e. the formation of parietal endoderm (PE). We previously reported that although in type I receptor (-/-) embryos PE formation seemed normal, the embryos were smaller from at least day 9.5 p.c. and 60% had died before day 12.5 p.c. Here we show that the observed growth defect commences even earlier, at day 8.5 p.c. Using two novel antibodies, we show that the expression of the type I receptor protein at this stage is confined to extraembryonic endoderm only. In addition, we show that large amounts of PTHrP protein are present in the adjacent trophoblast giant cells, suggesting a paracrine interaction of PTHrP and the type I PTH/PTHrP receptor in PE formation. The involvement in PE differentiation of other recently described receptors for PTHrP would explain a possible redundancy for the type I receptor in PE formation. However, deletion of the type I PTH/PTHrP receptor in ES cells by homologous recombination completely prevents PTHrP-induced PE differentiation. Based upon these observations, we propose that PTHrP and the type I PTH/PTHrP receptor, although not required for the initial formation of PE, are required for its proper differentiation and/or functioning.