The steroid hormones 17β-estradiol and progesterone are critical regulators of endometrial stromal cell differentiation, known as decidualization, which is a prerequisite for successful establishment of pregnancy. The present study using primary human endometrial stromal cells (HESCs) addressed the role of estrogen receptor-α (ESR1) in decidualization. Knockdown of ESR1 transcripts by RNA interference led to a marked reduction in decidualization of HESCs. Gene expression profiling at an early stage of decidualization indicated that ESR1 negatively regulates several cell cycle regulatory factors, thereby suppressing the proliferation of HESCs as these cells enter the differentiation program. ESR1 also controls the expression of WNT4, FOXO1, and progesterone receptor (PGR), well-known mediators of decidualization. Whereas ESR1 knockdown strongly inhibited the expression of FOXO1 and WNT4 transcripts within 24 hours of the initiation of decidualization, PGR expression remained unaffected at this early time point. Our study also revealed a major role of cAMP signaling in influencing the function of ESR1 during decidualization. Using a proteomic approach, we discovered that the cAMP-dependent protein kinase A (PKA) phosphorylates Mediator 1 (MED1), a subunit of the mediator coactivator complex, during HESC differentiation. Using immunoprecipitation, we demonstrated that PKA-phosphorylated MED1 interacts with ESR1. The PKA-dependent phosphorylation of MED1 was also correlated with its enhanced recruitment to estrogen-responsive elements in the WNT4 gene. Knockdown of MED1 transcripts impaired the expression of ESR1-induced WNT4 and FOXO1 transcripts and blocked decidualization. Based on these findings, we conclude that modulation of ESR1-MED1 interactions by cAMP signaling plays a critical role in human decidualization.