Trophoblast is the primary epithelial cell type in the placenta, a transient organ required for proper fetal growth and development. We have identified a CDX2+/p63+ cytotrophoblast (CTB) subpopulation in the early post-implantation human placenta, which is significantly reduced later in gestation. CTB differentiate into different trophoblast subtypes, which are responsible for gas/nutrient exchange (syncytiotrophoblast/STB) and invasion and maternal vascular remodeling (extravillous trophoblast/EVT). Study of early human placental development is severely hampered by lack of a representative trophoblast stem cell (TSC) model, with the capacity for self-renewal and the ability to differentiate into both STB and EVT. We describe a reproducible protocol, using defined media containing BMP4, by which human embryonic stem cells (hESC) can be differentiated into CDX2+/p63+ CTB-like cells. These cells can be replated to further differentiate into STB- and EVT-like cells, based on marker expression, hormone secretion and invasive ability. Differentiation of hPSC-derived CTB in hypoxia leads to reduced hCG secretion and STB-associated gene expression, instead inducing EVT differentiation in a hypoxia-inducible factor-dependent manner.