During pregnancy, progesterone inhibits the growth-promoting actions of estrogen in the uterus. However, the mechanism for this is not clear. The attenuation of estrogen-mediated proliferation of the uterine epithelium by progesterone is a prerequisite for successful implantation. Our study reveals that progesterone-induced expression of the basic helix-loop-helix transcription factor Hand2 in the uterine stroma suppresses the production of several fibroblast growth factors (FGFs) that act as paracrine mediators of mitogenic effects of estrogen on the epithelium. In mouse uteri lacking Hand2, continued induction of these FGFs in the stroma maintains epithelial proliferation and stimulates estrogen-induced pathways, resulting in impaired implantation. Thus, Hand2 is a critical regulator of the uterine stromal-epithelial communication that directs proper steroid regulation conducive for the establishment of pregnancy.