Disruption of the mouse gene encoding the blood coagulation inhibitor thrombomodulin (Thbd) leads to embryonic lethality caused by an unknown defect in the placenta. We show that the abortion of thrombomodulin-deficient embryos is caused by tissue factor-initiated activation of the blood coagulation cascade at the feto-maternal interface. Activated coagulation factors induce cell death and growth inhibition of placental trophoblast cells by two distinct mechanisms. The death of giant trophoblast cells is caused by conversion of the thrombin substrate fibrinogen to fibrin and subsequent formation of fibrin degradation products. In contrast, the growth arrest of trophoblast cells is not mediated by fibrin, but is a likely result of engagement of protease-activated receptors (PAR)-2 and PAR-4 by coagulation factors. These findings show a new function for the thrombomodulin-protein C system in controlling the growth and survival of trophoblast cells in the placenta. This function is essential for the maintenance of pregnancy.