Thyroid dysfunction during human pregnancy is closely related to serious pregnancy outcome. However, the regulation and function of thyroid hormones during early pregnancy are largely unknown. We found that type II deiodinase, an enzyme converting T4 to activated T3, is highly expressed in the mouse uterus on days 3 and 4 of pregnancy. Once the embryo implants into the receptive uterus, type III deiodinase (Dio3), a mainly paternally imprinted gene for inactivating T3, is significantly induced in the stromal cells and accompanied by DNA hypermethylation of intergenic differentially CpG methylation regions in the δ-like 1 homolog-Dio3 imprinting cluster. The concentration of uterine free T3 is actually decreased after embryo implantation. T3 induces Dio3 expression both in vivo and in vitro, suggesting a positive feedback loop. T3 addition or Dio3 knockdown compromises decidualization. These results indicate that the Dio3-mediated local T3 decrease is critical for decidualization of stromal cells during early pregnancy. Furthermore, we found that progesterone regulates Dio3 expression through its cognate receptor both in vivo and in vitro. Additionally, cAMP regulates Dio3 transcription through the protein kinase A-cAMP response element-binding protein pathway. The inhibition of the protein kinase A pathway results in decreased Dio3 expression and impaired decidualization. Dio3 opposite strand (Dio3os) expressed in a similar pattern to Dio3, is transcribed from the opposite strand of Dio3 and fine-tunes Dio3 expression during decidualization. Our data indicate that Dio3 is strongly expressed and tightly controlled during decidualization.