The major components of the mammalian placental membranes are an epithelial surface layer, the trophoblast, and a heavily vascularized mesenchyme, the allantoic mesenchyme. The trophoblast layer makes the most intimate contact with maternal tissues and it displays a wide range of unusual, often invasive, phenotypes. However, one common feature of trophoblast development in all species is a strong correlation between the proliferation and differentiation of this epithelial layer and its physical contact with developing allantoic mesenchyme. This suggests an epithelial-mesenchymal interaction involving paracrine signals from allantoic mesenchyme acting on adjacent trophoblast. The expression patterns of several growth factors and their receptors, including hepatocyte growth factor-scatter factor (HGF-SF) and its receptor, c-met, support the hypothesis. Furthermore, HGF-SF and c-met gene knockout studies in mice indicate that HGF-SF and c-met are both essential for placental development. HGF-SF, in addition to being a potent mitogen, causes scattering and morphogenic changes in cultured cells and is believed to be an important mediator of the induction of epithelial differentiation during embryogenesis. This review evaluates the importance of mesenchymal induction of trophoblast growth and differentiation in placental development and argues that HGF-SF is a crucial component of the mesenchymal stimulus.