While the fetal pituitary synthesizes and releases prolactin, it is also produced within the utero-placental unit during pregnancy in women and has been localized in the amnion, chorion and decidua. However, it is not clear whether prolactin is synthesized within all these non-fetal pituitary tissues. We have investigated prolactin production and its gene expression using tissue culture, immunocytochemistry and in-situ hybridization techniques. Prolactin was immunolocalized not only in the decidua but also in amnion and trophoblast cells. In contrast, the in-situ hybridization results showed that silver grains, formed by specific hybridization of a prolactin cDNA probe to prolactin mRNA, were confined to decidual cells of early and term pregnancy. The results from tissue cultures correlated well with those of in-situ hybridization, that is that only the decidua made detectable prolactin, while it was undetectable in the culture medium from trophoblast tissue, irrespective of the stage of pregnancy. This study, for the first time, establishes that only decidualized cells are involved in biosynthesis of prolactin; other prolactin-containing cells in the amnion and trophoblast appear to sequester prolactin, possibly via receptors, suggesting that prolactin may play an important paracrine role within the amnion and syncitio- and cytotrophoblast of the utero-placental unit.