Placental development is markedly abnormal in trisomy 21 (T21) pregnancies. We hypothesized that abnormal paracrine cross talk between the fetal mesenchymal core and the trophoblast might be involved in the defect of syncytiotrophoblast formation and function. In a large series of primary cultured human cytotrophoblasts isolated from second-trimester control (n = 44) and T21 placentae (n = 71), abnormal trophoblast fusion and differentiation was observed in more than 90% of T21 cases. We then isolated and cultured villous mesenchymal cells from control (n = 10) and T21 placentae (n = 8) and confirmed their fetal origin. Conditioned medium of control mesenchymal cells overcame the abnormal trophoblast fusion of T21 cytotrophoblasts by activating the TGFβ signaling pathway, as shown by the phosphospecific protein microarray analysis and the use of TGFβ signaling pathway antagonists. Using protein arrays, we further analyzed the cytokines present in the conditioned medium from control and T21 mesenchymal cells. Activin-A was identified as strongly secreted by cells from both sources, but at a significantly (P < 0.01) lower level in the case of T21 mesenchymal cells. Recombinant activin-A stimulated T21 trophoblast fusion. Blocking activin-A antibody inhibited the fusion induced by conditioned medium and exogenous activin-A. Furthermore, follistatin, an activin-A binding protein largely secreted by T21 mesenchymal cells, inhibited the conditioned medium fusogenic activity. These results show that the defective trophoblast fusion and differentiation associated with T21 can be overcome in vitro and reveal the key role of the fetal mesenchymal core in human trophoblast differentiation.