Embryonic stem (ES) cells are under precise control of both intrinsic self-renewal gene regulatory network and extrinsic growth factor-triggered signaling cascades. How external signaling pathways connect to core self-renewal transcriptional circuits is largely unknown. To probe this, we chose BMP signaling, which is previously recognized as a master control for both self-renewal and lineage commitment of murine ES cells. Here, we mapped target gene promoter occupancy of SMAD1/5 and SMAD4 on a genome-wide scale and found that they associate with a large group of developmental regulators that are enriched for H3K27 trimethylation and H3K4 trimethylation bivalent marks and are repressed in the self-renewing state, whereas they are rapidly induced upon differentiation. Smad knockdown experiments further indicate that SMAD-mediated BMP signaling is largely required for differentiation-related processes rather than directly influencing self-renewal. Among the SMAD-associated genes, we further identified Dpysl2 (previously known as Crmp2) and the H3K27 demethylase Kdm6b (previously known as Jmjd3) as BMP4-modulated early neural differentiation regulators. Combined with computational analysis, our results suggest that SMAD-mediated BMP signaling balances self-renewal versus differentiation by modulating a set of developmental regulators.