Lefty expression has been recognized as a stemness marker because Lefty is enriched both in undifferentiated embryonic stem cells (ESCs) and in blastocysts. Here, we examined the function of Lefty1 and Lefty2 in the maintenance of self-renewal and pluripotency of mouse ESCs (mESCs). Suppression of Lefty1 or Lefty2 expression in mESCs did not alter the self-renewal properties of mESCs under nondifferentiating conditions, but suppression of these genes did affect Smad2 phosphorylation and differentiation. Lefty1 knockdown mESCs showed enhanced phosphorylation of Smad2 and increased differentiation potential, whereas Lefty2 knockdown mESCs exhibited reduced phosphorylation of Smad2 and enhanced self-renewal in the presence of a differentiation signal. In vivo, teratomas developed from Lefty2 knockdown mESCs contained massive expansions of immature neuroepithelium, a marker of malignant teratomas. Taken together, these results suggest that optimal expression of Lefty1 and Lefty2 is critical for the balanced differentiation of mESCs into three germ layers.