Embryonic stem (ES) cells are able to grow indefinitely (self-renewal) and have the potential to differentiate into all adult cell types (pluripotency). The regulatory network that controls pluripotency is well characterized, whereas the molecular basis for the transition from self-renewal to the differentiation of ES cells is much less understood, although dynamic epigenetic gene silencing and chromatin compaction are clearly implicated. In this study, we report that UTF1 (undifferentiated embryonic cell transcription factor 1) is involved in ES cell differentiation. Knockdown of UTF1 in ES and carcinoma cells resulted in a substantial delay or block in differentiation. Further analysis using fluorescence recovery after photobleaching assays, subnuclear fractionations, and reporter assays revealed that UTF1 is a stably chromatin-associated transcriptional repressor protein with a dynamic behavior similar to core histones. An N-terminal Myb/SANT domain and a C-terminal domain containing a putative leucine zipper are required for these properties of UTF1. These data demonstrate that UTF1 is a strongly chromatin-associated protein involved in the initiation of ES cell differentiation.