Endometrial stromal cells differentiate to form decidual cells in a process known as decidualization, which is critical for embryo implantation and successful establishment of pregnancy. We previously reported that bone morphogenetic protein 2 (BMP2) mediates uterine stromal cell differentiation in mice and in humans. To identify the downstream target(s) of BMP2 signaling during decidualization, we performed gene-expression profiling of mouse uterine stromal cells, treated or not treated with recombinant BMP2. Our studies revealed that expression of Msx2, a member of the mammalian Msx homeobox gene family, was markedly upregulated in response to exogenous BMP2. Interestingly, conditional ablation of Msx2 in the uterus failed to prevent a decidual phenotype, presumably because of functional compensation of Msx2 by Msx1, a closely related member of the Msx family. Indeed, in Msx2-null uteri, the level of Msx1 expression in the stromal cells was markedly elevated. When conditional, tissue-specific ablation of both Msx1 and Msx2 was accomplished in the mouse uterus, a dramatically impaired decidual response was observed. In the absence of both Msx1 and Msx2, uterine stromal cells were able to proliferate, but they failed to undergo terminal differentiation. In parallel experiments, addition of BMP2 to human endometrial stromal cell cultures led to a robust enhancement of MSX1 and MSX2 expression and stimulated the differentiation process. Attenuation of MSX1 and MSX2 expression by small interfering RNAs greatly reduced human stromal differentiation in vitro, indicating a conservation of their roles as key mediators of BMP2-induced decidualization in mice and women.