Embryonic stem cells (ES cells) can differentiate into cells derived from all three germ layers and extraembryonic tissues. While transcription factors such as, Oct4 and Nanog are well known for their requirements for undifferentiated ES cell growth, mechanisms of epigenetic repression of germ layer specific differentiation in ES cells are not well understood. Here, we investigate functions of Mbd3, a component of nucleosome remodeling and histone deacetylation complex (NuRD/Mi-2) in mouse ES cells. We find that compared to wild type ES cells, Mbd3 knockdown cells show elevated RNA expression of trophectoderm markers, including Cdx2, Eomesodermin, and Hand1. In parallel, these cells show an increased acetylation level of histone 3 in promoters of the respective genes, suggesting Mbd3 plays a role in repression of these genes in undifferentiated ES cells. However, these changes are not sufficient for definitive differentiation to trophectoderm (TE) in chimeric embryos. When further cultured in ES medium without LIF or in trophoblast stem (TS) cell medium, Mbd3 knockdown cells differentiate into TE cells, which express Cdx2 and, at later stages, trophoblast lineage specific marker Cadherin 3. These results suggest that Mbd3 helps restrict ES cells from differentiating towards the trophectoderm lineage and is an important epigenetic player in maintaining full pluripotency of mouse ES cells.