E. coli AlkB has been intensively studied since 1983, but the in vivo roles of its mammalian homologue Alkbh1 are unknown. We, therefore, created null mice for Alkbh1. Alkbh1 mRNA is expressed at highest levels in the trophoblast lineages of the developing placenta. Alkbh1(-/-) placentas have decreased expression of differentiated trophoblast markers including Tpbp, Gcm1, and Pl-1, and increased expression of the trophoblast stem cell marker Eomes. Alkbh1 localizes to nuclear euchromatin, and interacts strongly with Mrj, an essential placental gene that mediates gene repression by recruitment of class II histone deacetylases (HDACs). Competition experiments show Alkbh1 and HDAC4 binding to Mrj are mutually exclusive, which causes decreased HDAC activity and increased target gene expression. Our study demonstrates Alkbh1 performs important functions in placental trophoblast lineage differentiation and participates in mechanisms of transcriptional regulation.