In embryonic stem (ES) cells, a well-characterized transcriptional network promotes pluripotency and represses gene expression required for differentiation. In comparison, the transcriptional networks that promote differentiation of ES cells and the blastocyst inner cell mass are poorly understood. Here, we show that Sox17 is a transcriptional regulator of differentiation in these pluripotent cells. ES cells deficient in Sox17 fail to differentiate into extraembryonic cell types and maintain expression of pluripotency-associated transcription factors, including Oct4, Nanog, and Sox2. In contrast, forced expression of Sox17 down-regulates ES cell-associated gene expression and directly activates genes functioning in differentiation toward an extraembryonic endoderm cell fate. We show these effects of Sox17 on ES cell gene expression are mediated at least in part through a competition between Sox17 and Nanog for common DNA-binding sites. By elaborating the function of Sox17, our results provide insight into how the transcriptional network promoting ES cell self-renewal is interrupted, allowing cellular differentiation.