Human pregnancy sets up an inherent immunological paradox. In a tumor-like process semi-allogeneic fetal cells of the placenta (cytotrophoblasts; CTBs) invade the uterine lining (decidua) where they reside amongst an unusual subpopulation of maternal immune cells termed decidual granular leukocytes (DGLs). The majority of these cells are a unique population of Natural Killer (NK) cells termed decidual NK (dNK) cells. Here I address the response of dNK cells to the presence of semi-allogeneic CTBs. My work shows that dNK cells, which are competent killers of CTBs, are regulated by secretion of Transforming Growth Factor (TGF)-β by the surrounding DGLs. The data support the model that (a) purified dNK cells are competent killers of a variety of targets; (b) CD206+ CD14+ macrophages secrete TGF-β; (c) expression and secretion of TGF-β by CD14+ DGLs suppresses cytolytic activity in dNK cells; and (d) fetal cells induce this macrophage-mediated tolerance through cell-cell contact. The overall results support a model in which counterposing mechanisms regulate placentation and fetal development: dNK cells play a protective role, ready to kill fetal cells if defective or untoward invasion takes place, but are normally prevented from doing so by decidual macrophages that monitor invading cells and play an inhibitory role. Thus, CTBs, dNK cells and a specialized macrophage population play key roles in the immunological paradox the permits pregnancy progression.