Direct reprogramming of somatic cells to induced pluripotent stem cells (iPSCs) requires a resetting of the epigenome in order to facilitate a cell fate transition. Previous studies have shown that epigenetic modifying enzymes play a central role in controlling induced pluripotency and the generation of iPSC. Here we show that RNF40, a histone H2B lysine 120 E3 ubiquitin-protein ligase, is specifically required for early reprogramming during induced pluripotency. Loss of RNF40-mediated H2B monoubiquitination (H2Bub1) impaired early gene activation in reprogramming. We further show that RNF40 contributes to tissue-specific gene suppression via indirect effects by controlling the expression of the polycomb repressive complex-2 histone methyltransferase component EZH2, as well as through more direct effects by promoting the resolution of H3K4me3/H3K27me3 bivalency on H2Bub1-occupied pluripotency genes. Thus, we identify RNF40 as a central epigenetic mediator of cell state transition with distinct functions in resetting somatic cell state to pluripotency.