Genetic studies in fish, amphibia, and mice have shown that deficiency of Nodal signaling blocks differentiation into mesoderm and endoderm. Thus, Nodal is considered as a major inducer of mesendoderm during gastrulation. On this basis, Nodal is a candidate for controlling differentiation of pluripotent human embryonic stem cells (hESCs) into tissue lineages with potential clinical value. We have investigated the effect of Nodal, both as a recombinant protein and as a constitutively expressed transgene, on differentiation of hESCs. When control hESCs were grown in chemically defined medium, their expression of markers of pluripotency progressively decreased, while expression of neuroectoderm markers was strongly upregulated, thus revealing a neuroectodermal default mechanism for differentiation in this system. hESCs cultured in recombinant Nodal, by contrast, showed prolonged expression of pluripotency marker genes and reduced induction of neuroectoderm markers. These Nodal effects were accentuated in hESCs expressing a Nodal transgene, with striking morphogenetic consequences. Nodal-expressing hESCs developing as embryoid bodies contained an outer layer of visceral endoderm-like cells surrounding an inner layer of epiblast-like cells, each layer having distinct gene expression patterns. Markers of neuroectoderm were not upregulated during development of Nodal-expressing embryoid bodies, nor was there induction of markers for definitive mesoderm or endoderm differentiation. Moreover, the inner layer expressed markers of pluripotency, characteristic of undifferentiated hESCs and of epiblast in mouse embryos. These results could be accounted for by an inhibitory effect of Nodal-induced visceral endoderm on pluripotent cell differentiation into mesoderm and endoderm, with a concomitant inhibition of neuroectoderm differentiation by Nodal itself. There could also be a direct effect of Nodal in the maintenance of pluripotency. In summary, analysis of the Nodal-expressing phenotype suggests a function for the transforming growth factor-beta (TGF-beta) growth factor superfamily in pluripotency and in early cell fate decisions leading to primary tissue layers during in vitro development of pluripotent human stem cells. The effects of Nodal on early differentiation illustrate how hESCs can augment mouse embryos as a model for analyzing mechanisms of early mammalian development.