Elucidating how chromatin influences gene expression patterns and ultimately cell fate is fundamental to understanding development and disease. The histone variant H2AZ has emerged as a key regulator of chromatin function and plays an essential but unknown role during mammalian development. Here, genome-wide analysis reveals that H2AZ occupies the promoters of developmentally important genes in a manner that is remarkably similar to that of the Polycomb group (PcG) protein Suz12. By using RNAi, we demonstrate a role for H2AZ in regulating target gene expression, find that H2AZ and PcG protein occupancy is interdependent at promoters, and further show that H2AZ is necessary for ES cell differentiation. Notably, H2AZ occupies a different subset of genes in lineage-committed cells, suggesting that its dynamic redistribution is necessary for cell fate transitions. Thus, H2AZ, together with PcG proteins, may establish specialized chromatin states in ES cells necessary for the proper execution of developmental gene expression programs.