Mbd3 is a core component of the NuRD (Nucleosome Remodeling and Histone Deacetylation) co-repressor complex, and NuRD-mediated silencing has been implicated in cell fate decisions in a number of contexts. Mbd3-deficient embryonic stem (ES) cells made by gene targeting are viable but fail to form a stable NuRD complex, are severely compromised in the ability to differentiate, and show LIF-independent self-renewal. Mbd3 is known to be essential for postimplantation embryogenesis in mice, but the function of Mbd3 in vivo has not previously been addressed. Here we show that the inner cell mass (ICM) of Mbd3-deficient blastocysts fails to develop into mature epiblast after implantation. Unlike Mbd3-null ES cells, Mbd3-deficient ICMs grown ex vivo fail to expand their Oct4-positive, pluripotent cell population despite producing robust endoderm outgrowths. Additionally, we identify a set of genes showing stage-specific expression in ICM cells during preimplantation development, and show that Mbd3 is required for proper gene expression patterns in pre- and peri-implantation embryos and in ES cells. These results demonstrate the importance of Mbd3/NuRD for the development of pluripotent cells in vivo and for their ex vivo progression into embryonic stem cells, and highlight the differences between ES cells and the ICM cells from which they are derived.