Embryonic stem cells are defined by two key characteristics; apparently symmetrical self-renewing cell division and the ability to differentiate into cells of all three germ layers. Self-renewal depends on several extrinsic and intrinsic cues including a gene regulatory network centered around Oct4, Sox2 and Nanog that has been hypothesized to be reinforced by positive reciprocal interactions. Studies measuring Nanog expression by fluorescent reporters and immunoflourescence have shown that some undifferentiated Oct4 positive cells do not express Nanog (Chambers et al., 2007). However, the mechanisms responsible for generating this heterogeneity in Nanog expression are unknown. Here I show that Oct4 heterozygote ES cells lack Nanog-negative cells. Consistent with a model in which ES cell differentiation proceeds effectively through Nanog-negative cells, these Oct4 heterozygotes are retarded in their differentiation kinetics. Importantly, restoring Oct4 levels towards wild type reestablished both heterogenous Nanog expression and rapid differentiation. Analysis of ES cells carrying a mutation in the Oct4 binding site in the proximal Nanog promoter showed that Oct4 acts as a positive activator on the endogenous Nanog. Finally, comparison of gene expression in Nanog expressing and Nanog non-expressing ES cells has identified candidate genes that may be responsible for the switch in Nanog expression.