The development of the chorionic villous tree into a complex and organized ramified tubular network can be termed branching morphogenesis. Studying the molecular mechanisms involved in this process may contribute to the understanding of pregnancy complications such as preeclampsia. Sprouty (Spry) proteins are important regulators of branching morphogenesis and growth factor signaling. We analyzed the expression of Spry genes in human placenta. RT-PCR and immunohistochemistry were employed to detect placental Spry expression. Quantitative RT-PCR was used to assess the effect of FGF and reduced oxygen fraction on Spry gene expression. Spry 1, 2 and 3 expression was observed in placental tissue from all three trimesters. Our results reveal for the first time that Spry proteins are localized in the stroma of the chorionic villi, adjacent to cytotrophoblasts in areas of villous sprouting. Immunofluorescent double staining with anti-Spry and anti-CD68 confirmed that placental macrophages (Hofbauer cells) express Spry. Reduced oxygen fraction, FGF-4 and FGF-10 stimulated Spry-2 expression. Hofbauer cells also expressed c-Cbl, a protein that interacts with Spry. Placental expression of Spry and c-Cbl implies an important role for Hofbauer cells in placental development, possibly through a mesenchymal-epithelial interaction with trophoblasts. Regulation of Spry-2 expression by FGF-4 and FGF-10 suggests an orchestrated regulatory system that modulates villous branching.