Embryonic stem cell-derived endoderm is critical for the development of cellular therapies for the treatment of disease such as diabetes, liver cirrhosis, or pulmonary emphysema. Here, we describe a novel approach to induce endoderm from mouse embryonic stem (mES) cells using fibronectin-coated collagen gels. This technique results in a homogeneous endoderm-like cell population, demonstrating endoderm-specific gene and protein expression, which remains committed following in vivo transplantation. In this system, activin, normally an endoderm inducer, caused an 80% decrease in the Foxa2-positive endoderm fraction, whereas follistatin increased the Foxa2-positive endoderm fraction to 78%. Our work suggests that activin delays the induction of endoderm through its transient precursors, the epiblast and mesendoderm. Long-term differentiation displays a twofold reduction in hepatic gene expression and threefold reduction in hepatic protein expression of activin-treated cells compared with follistatin-treated cells. Moreover, subcutaneous transplantation of activin-treated cells in a syngeneic mouse generated a heterogeneous teratoma-like mass, suggesting that these were a more primitive population. In contrast, follistatin-treated cells resulted in an encapsulated epithelial-like mass, suggesting that these cells remained committed to the endoderm lineage. In conclusion, we demonstrate a novel technique to induce the direct differentiation of endoderm from mES cells without cell sorting. In addition, our work suggests a new role for activin in induction of the precursors to endoderm and a new endoderm-enrichment technique using follistatin.