Pseudogene-derived, long non-coding RNAs (lncRNAs) act as epigenetic regulators of gene expression. Here we present a panel of new mouse Oct4 pseudogenes and demonstrate that the X-linked Oct4 pseudogene Oct4P4 critically impacts mouse embryonic stem cells (mESCs) self-renewal. Sense Oct4P4 transcription produces a spliced, nuclear-restricted lncRNA that is efficiently upregulated during mESC differentiation. Oct4P4 lncRNA forms a complex with the SUV39H1 HMTase to direct the imposition of H3K9me3 and HP1α to the promoter of the ancestral Oct4 gene, located on chromosome 17, leading to gene silencing and reduced mESC self-renewal. Targeting Oct4P4 expression in primary mouse embryonic fibroblasts causes the re-acquisition of self-renewing features of mESC. We demonstrate that Oct4P4 lncRNA plays an important role in inducing and maintaining silencing of the ancestral Oct4 gene in differentiating mESCs. Our data introduces a sense pseudogene-lncRNA-based mechanism of epigenetic gene regulation that controls the cross-talk between pseudogenes and their ancestral genes.