Differentiation inhibiting activity/leukemia inhibitory factor (DIA/LIF) is a glycoprotein that controls differentiation of pluripotential stem cells. Alternative transcription generates both diffusible and matrix-associated forms of DIA/LIF. Transcriptional analysis using a sensitive ribonuclease protection assay revealed that the two messages are expressed independently, consistent with the proposition that the two forms of DIA/LIF have distinct biological roles. DIA/LIF expression was found to be activated early during differentiation of embryonic stem (ES) cells, providing a mechanism for feedback regulation of stem cell renewal. Expression of DIA/LIF by mesenchymal cells was shown to be controlled in a paracrine manner by polypeptide regulatory factors. Specific expression of the two forms of DIA/LIF was also demonstrated in the egg cylinder-stage mouse embryo. The combination of cell type-specific and signal-specific regulation enables very precise control over DIA/LIF expression and may represent an important component of the regulatory networks that govern stem cell proliferation and differentiation during mammalian development.