Embryonic stem cells (ESCs) are capable of unlimited self-renewal and retain the pluripotency to differentiate into all cell lineages in the body. Since DNA damage occurs during normal cellular proliferation as well as after exposure to DNA damaging agents, it is critical for ESCs to possess stringent mechanisms to maintain genetic stability and prevent the passage of DNA damage to the progeny. Consistent with this notion, the rate of spontaneous mutation in ESCs is several magnitudes lower than that in somatic cells. Our recent findings indicate that tumor suppressor p53 plays an important role in maintaining genetic stability in ESCs by eliminating DNA-damaged ESCs from the replicative ESC pool. In this context, p53 induces the differentiation of DNA-damaged ESCs by directly suppressing the expression of Nanog, which is critical for the self-renewal of ESCs. This newly found role of p53 in cellular differentiation indicates an alternative mechanism for p53 to maintain genetic stability in ESCs and suggests the possibility that p53 might play a similar role in certain tissue stem cells and suppress the development of cancer stem cells.