Nanog is a divergent homeodomain protein found in mammalian pluripotent cells and developing germ cells. Deletion of Nanog causes early embryonic lethality, whereas constitutive expression enables autonomous self-renewal of embryonic stem cells. Nanog is accordingly considered a core element of the pluripotent transcriptional network. However, here we report that Nanog fluctuates in mouse embryonic stem cells. Transient downregulation of Nanog appears to predispose cells towards differentiation but does not mark commitment. By genetic deletion we show that, although they are prone to differentiate, embryonic stem cells can self-renew indefinitely in the permanent absence of Nanog. Expanded Nanog null cells colonize embryonic germ layers and exhibit multilineage differentiation both in fetal and adult chimaeras. Although they are also recruited to the germ line, primordial germ cells lacking Nanog fail to mature on reaching the genital ridge. This defect is rescued by repair of the mutant allele. Thus Nanog is dispensible for expression of somatic pluripotency but is specifically required for formation of germ cells. Nanog therefore acts primarily in construction of inner cell mass and germ cell states rather than in the housekeeping machinery of pluripotency. We surmise that Nanog stabilizes embryonic stem cells in culture by resisting or reversing alternative gene expression states.