Hydroxysteroid (17-beta) dehydrogenase 2 (HSD17B2) is a member of aldo-keto reductase superfamily, known to catalyze the inactivation of 17-hydroxysteroids to less active 17-keto forms, and catalyze the conversion of 20-hydroxyprogesterone to progesterone in vitro. To examine the role of HSD17B2 in vivo, we generated mice deficient in Hsd17b2 (HSD17B2KO) by a targeted gene disruption in embryonic stem cells. From the homozygous mice carrying the disrupted Hsd17b2, 70% showed embryonic lethality appearing at the age of E11.5 onwards. The embryonic lethality was associated with reduced placental size measured at the E17.5. The HSD17B2KO mice placentas presented with structural abnormalities in all tree major layers; the decidua, spongiotrophoblast and labyrinth. Most notable was the disruption of the spongiotrophoblast and labyrinthine layers, together with liquid filled cysts in the junctional region and the basal layer. Treatments with an antiestrogen or progesterone did not rescue the embryonic lethality or the placenta defect in the homozygous mice. In hybrid backround used, 24% of HSD17B2KO mice survived through fetal period but were born growth retarded and displayed a phenotype in the brain with enlargement of ventricles, abnormal laminar organization and increased cellular density in the cortex. Furthermore, the HSD17B2KO mice had unilateral renal degeneration, the affected kidney frequently appearing as a fluid filled sac. Our results provide evidence for a role for HSD17B2 enzyme in the cellular organization of the mouse placenta.