Embryonic stem cells (ESCs) are regulated by pluripotency-related transcription factors in concert with chromatin regulators. To identify additional stem cell regulators, we screened a library of endogenously labeled fluorescent fusion proteins in mouse ESCs for fluorescence loss during differentiation. We identified SET, which displayed a rapid isoform shift during early differentiation from the predominant isoform in ESCs, SETα, to the primary isoform in differentiated cells, SETβ, through alternative promoters. SETα is selectively bound and regulated by pluripotency factors. SET depletion causes proliferation slowdown and perturbed neuronal differentiation in vitro and developmental arrest in vivo, and photobleaching methods demonstrate SET's role in maintaining a dynamic chromatin state in ESCs. This work identifies an important regulator of pluripotency and early differentiation, which is controlled by alternative promoter usage. In this article, Meshorer and colleagues screen the endogenously tagged fluorescent library they generated (see the accompanying paper by Harikumar et al.) and identify a linker histone chaperone, SET/TAF-I, to be involved in regulating mouse ESC pluripotency and early differentiation decisions. They show that SET has two isoforms regulated by alternative promoters and pluripotency factors, which are switched during early differentiation. SETα/SETβ replacement is important for ESC differentiation.