Although the main role of prolactin (PRL) in pregnant rodents is to sustain progesterone production by the corpus luteum, progesterone treatment of PRL or PRL receptor (PRL-R) null mice is unable to prevent fetal loss. We have previously shown that the rat decidua is a site of PRL production and action. In this report, we examined the hypothesis, using PRL null mice and rat decidual cell culture, that the absence of this hormone leads to the expression in the decidua of genes detrimental to pregnancy. The results show that decidual growth is normal in PRL null mice treated with PRL, progesterone, or their combination. However, the decidua of mice treated with progesterone starts expressing IL-6 and 20alpha-hydroxysteroid dehydrogenase (20alpha-HSD), two proteins absent from the decidua of wild-type mice and involved, respectively, in inflammation and progesterone catabolism. The expression of both IL-6 and 20alpha-HSD is prevented by PRL treatment. Our results further suggest that PRL inhibition of 20alpha-HSD expression is at the level of transcription and that decidual PRL (dPRL) inhibits 20alpha-HSD promoter activity. Inhibitors of Janus kinase 2 (Jak2) but not other kinases prevent dPRL down-regulation of the 20alpha-HSD promoter. Furthermore, cotransfection of the 20alpha-HSD promoter with expression vectors of constitutively active PRL-R, Jak2, or signal transducer and activator of transcription 5b (Stat5b) leads to substantial inhibition of promoter activity. Taken together, our investigation provides an explanation for the inability of progesterone to sustain pregnancy in PRL null mice and suggests that dPRL plays an important role in pregnancy by repressing the expression of IL-6 and 20alpha-HSD in the decidua. The study also demonstrates that PRL signals through the Jak2/Stat5 pathway to down-regulate 20alpha-HSD expression in the decidua.