The placenta is an organ that is formed transiently during pregnancy, and appropriate placental development is necessary for fetal survival and growth. Proper differentiation of the labyrinthine layer of the placenta is especially crucial, as it establishes the fetal-maternal interface that is involved in physiological exchange processes. Although previous studies have indicated the importance of inhibitor of differentiation/inhibitor of DNA binding-2 (Id2) helix-loop-helix transcriptional regulator in mediating cell differentiation, the ability of Id2 to regulate differentiation toward the labyrinthine (transport) lineage of the placenta has yet to be determined. In the current study, we have generated labyrinthine trophoblast progenitor cells with increased (SM10-Id2) or decreased (SM10-Id2-shRNA) Id2 expression and determined the effect on TGF-β-induced differentiation. Our Id2 overexpression and knockdown analyses indicate that Id2 mediates TGF-β-induced morphological differentiation of labyrinthine trophoblast cells, as Id2 overexpression prevents differentiation and Id2 knockdown results in differentiation. Thus, our data indicate that Id2 is an important molecular mediator of labyrinthine trophoblast differentiation. An understanding of the regulators of trophoblast progenitor differentiation toward the labyrinthine lineage may offer insights into events governing pregnancy-associated disorders, such as placental insufficiency, fetal growth restriction, and preeclampsia.