There is increasing evidence that maldevelopment of the placental villous tree can play an important role in the pathogenesis of various pregnancy diseases. In this review we present the most recent advances of cellular and molecular mechanisms involved in the early formation of chorionic villi. In particular we focus our attention on the structural events during early villous sprouting leading to the formation of the mesenchymal villi which are the forerunners of all other villous types, i.e. immature intermediate villi, stem villi, mature intermediate villi and terminal villi. Early villous sprouting starts as 'hot spots' which are circumscribed areas consisting of highly proliferating cytotrophoblastic and stromal cells. The post-proliferative cytotrophoblastic cells fuse with the overlying syncytium leading to the formation of the trophoblastic sprouts. When villous mesenchyme invades the trophoblastic sprouts, the latter are transformed into villous sprouts. The vascularization of the villous sprouts leads to the formation of the mesenchymal villi, the most basic villous type. This process is repeated throughout pregnancy. We analyse the influence of various extracellular matrix molecules, e.g. tenascin and hyaluronic acid, on the formation of hot spots and mesenchymal villi as well as the transformation of the latter in other villous types. We present a critical survey on the data on vessel formation related to villous sprouting and morphogenesis of mesenchymal villi as well as the expression of various angiogenic factors and their receptors.