Post-translational modifications (PTMs) of histones exert fundamental roles in regulating gene expression. During development, groups of PTMs are constrained by unknown mechanisms into combinatorial patterns, which facilitate transitions from uncommitted embryonic cells into differentiated somatic cell lineages. Repressive histone modifications such as H3K9me3 or H3K27me3 have been investigated in detail, but the role of H4K20me3 in development is currently unknown. Here we show that Xenopus laevis Suv4-20h1 and h2 histone methyltransferases (HMTases) are essential for induction and differentiation of the neuroectoderm. Morpholino-mediated knockdown of the two HMTases leads to a selective and specific downregulation of genes controlling neural induction, thereby effectively blocking differentiation of the neuroectoderm. Global transcriptome analysis supports the notion that these effects arise from the transcriptional deregulation of specific genes rather than widespread, pleiotropic effects. Interestingly, morphant embryos fail to repress the Oct4-related Xenopus gene Oct-25. We validate Oct-25 as a direct target of xSu4-20h enzyme mediated gene repression, showing by chromatin immunoprecipitaton that it is decorated with the H4K20me3 mark downstream of the promoter in normal, but not in double-morphant, embryos. Since knockdown of Oct-25 protein significantly rescues the neural differentiation defect in xSuv4-20h double-morphant embryos, we conclude that the epistatic relationship between Suv4-20h enzymes and Oct-25 controls the transit from pluripotent to differentiation-competent neural cells. Consistent with these results in Xenopus, murine Suv4-20h1/h2 double-knockout embryonic stem (DKO ES) cells exhibit increased Oct4 protein levels before and during EB formation, and reveal a compromised and biased capacity for in vitro differentiation, when compared to normal ES cells. Together, these results suggest a regulatory mechanism, conserved between amphibians and mammals, in which H4K20me3-dependent restriction of specific POU-V genes directs cell fate decisions, when embryonic cells exit the pluripotent state.