Embryonic stem (ES) cells continuously decide whether to maintain pluripotency or differentiate. While exogenous leukemia inhibitory factor and BMP4 perpetuate a pluripotent state, less is known about the factors initiating differentiation. We show that heparan sulfate (HS) proteoglycans are critical coreceptors for signals inducing ES cell differentiation. Genetic targeting of NDST1 and NDST2, two enzymes required for N-sulfation of proteoglycans, blocked differentiation. This phenotype was rescued by HS presented in trans or by soluble heparin. NaClO(3) (-), which reduces sulfation of proteoglycans, potently blocked differentiation of wild-type cells. Mechanistically, N-sulfation was identified to be critical for functional autocrine fibroblast growth factor 4 (FGF4) signaling. Microarray analysis identified the pluripotency maintaining transcription factors Nanog, KLF2/4/8, Tbx3, and Tcf3 to be negatively regulated, whereas markers of differentiation such as Gbx2, Dnmt3b, FGF5, and Brachyury were induced by sulfation-dependent FGF receptor (FGFR) signaling. We show that several of these genes are heterogeneously expressed in ES cells, and that targeting of heparan sulfation or FGFR-signaling facilitated a homogenous Nanog/KLF4/Tbx3 positive ES cell state. This finding suggests that the recently discovered heterogeneous state of ES cells is regulated by HS-dependent FGFR signaling. Similarly, culturing blastocysts with NaClO(3) (-) eliminated GATA6-positive primitive endoderm progenitors generating a homogenous Nanog-positive inner cell mass. Functionally, reduction of sulfation robustly improved de novo ES cell derivation efficiency. We conclude that N-sulfated HS is required for FGF4 signaling to maintain ES cells primed for differentiation in a heterogeneous state. Inhibiting this pathway facilitates a more naïve ground state.