A critical role of progesterone (P) during early pregnancy is to induce differentiation of the endometrial stromal cells into specialized decidual cells that support the development of the implanting embryo. The P-induced signaling pathways that participate in the formation and function of the decidual cells remain poorly understood. We report here that the expression of the bone morphogenetic protein 2 (BMP2), a morphogen belonging to the TGFbeta superfamily, is induced downstream of P action in the mouse uterine stroma during decidualization. To determine the function of BMP2 during this differentiation process, we employed a primary culture system in which undifferentiated stromal cells isolated from pregnant mouse uterus undergo decidualization. When recombinant BMP2 was added to these stromal cultures, it markedly advanced the differentiation program. We also found that siRNA-mediated silencing of BMP2 expression in these cells efficiently blocked the differentiation process. Gene expression profiling experiments identified Wnt4 as a downstream target of BMP2 regulation in stromal cells undergoing decidualization. Attenuation of Wnt4 expression by siRNAs greatly reduced stromal differentiation in vitro, indicating that it is a key mediator of BMP2-induced decidualization. We also observed a remarkable induction in the expression of BMP2 in human endometrial stromal cells during decidualization in vitro in response to steroids and cAMP. Addition of BMP2 to these cultures led to a robust enhancement of Wnt4 expression and stimulated the differentiation process. Collectively, our studies uncovered a unique conserved pathway involving BMP2 and Wnt4 that mediates P-induced stromal decidualization in the mouse and the human.