A considerable oxygen gradient exists in vivo, which exerts regulatory effects on tissue development and function. The objective of this study was to evaluate the feasibility of controlling cell proliferation and differentiation by regulating oxygen tension in a tissue-engineered bioreactor model. The effects of oxygen tension on proliferation and differentiation of first-trimester human trophoblast cells (known as ED(27) cells) were studied in a fiber-bed perfusion bioreactor system in which cells were grown in polyethylene terephthalate (PET) nonwoven fibrous matrix. By varying the oxygen tension between 2% and 20%, differential responses of trophoblasts in their proliferation and differentiation activities were observed. There was no significant difference in the rates of glucose consumption and lactate production, and lactate dehydrogenase (LDH) level in the culture media for both 2% and 20% oxygen tension cultures, indicating that cell metabolic activities were not limited by low oxygen tension. However, 2% oxygen stimulated cell proliferation but impeded the secretion of a functional hormone, 17beta-estradiol. In contrast, 20% oxygen tension reduced cell proliferation, but yielded higher hormone secretion. A step change in oxygen tension from 2% to 20% caused cells in the bioreactor to increase 17beta-estradiol secretion and shifted cell cycle from proliferation to differentiation, which were verified with the expression levels of cyclin B1 and p27(kip1). However, no significant response to a change from 6% to 20% oxygen tension was observed. It is concluded that changes in oxygen tension can be an effective strategy to control cell cycle and long-term tissue development. This work also demonstrated the important role of oxygen tension in regulating placental trophoblast tissue development and the feasibility of using the bioreactor under well-controlled physiological environment for tissue engineering applications.