The bHLH-repressor protein I-mfa binds to MyoD family members, inhibits their activity, and blocks their nuclear import and binding to DNA. In situ hybridization analysis demonstrated that mouse I-mfa was highly expressed in extraembryonic lineages, in the sclerotome, and subsequently within mesenchymal precursors of the axial and appendicular skeleton, before chondrogenesis occurs. Targeted deletion of I-mfa in a C57Bl/6 background resulted in embryonic lethality around E10.5, associated with a placental defect and a markedly reduced number of trophoblast giant cells. Overexpression of I-mfa in rat trophoblast (Rcho-1) stem cells induced differentiation into trophoblast giant cells. I-mfa interacted with the bHLH protein Mash2, a negative regulator of trophoblast giant cell formation, and inhibited its transcriptional activity in cell culture. In contrast, I-mfa did not interfere with the activity of the bHLH protein Hand1, a positive regulator of giant cell differentiation. Interestingly, I-mfa-null embryos on a 129/Sv background had no placental defect, generally survived to adulthood, and exhibited delayed caudal neural tube closure and skeletal patterning defects that included fusions of ribs, vertebral bodies and abnormal formation of spinous processes. Our results indicate that I-mfa plays an important role in trophoblast and chondrogenic differentiation by negatively regulating a subset of lineage-restricted bHLH proteins.