The canonical TGF-β/Smad signaling pathway was delineated in the mid 90s and enriched over the past decade with many findings about its specificity, regulation, networking, and malfunctions in disease. However, a growing understanding of the chromatin status of a critical class of TGF-β target genes – the genes controlling differentiation of embryonic stem cells – recently prompted a reexamination of this pathway and its critical role in the regulation of stem cell differentiation. The new findings reveal master regulators of the pluripotent state set the stage for Smad-mediated activation of master regulators of the next differentiation stage. Furthermore, a novel branch of the TGF-β/Smad pathway has been identified in which a chromatin-reading Smad complex makes the master differentiation genes accessible to canonical Smad complexes for transcriptional activation. These findings provide exciting new insights into the global role of TGF-β signaling in the regulators of stem cell fate.