Mitochondria are highly dynamic organelles that play multiple roles in cells. How mitochondria cooperatively modulate embryonic stem (ES) cell function during development is not fully understood. Global disruption of Ptpmt1, a mitochondrial Pten-like phosphatidylinositol phosphate (PIP) phosphatase, resulted in developmental arrest and postimplantation lethality. Ptpmt1(-/-) blastocysts failed to outgrow, and inner-cell-mass cells failed to thrive. Depletion of Ptpmt1 in conditional knockout ES cells decreased proliferation without affecting energy homeostasis or cell survival. Differentiation of Ptpmt1-depleted ES cells was essentially blocked. This was accompanied by upregulation of cyclin-dependent kinase inhibitors and a significant cell cycle delay. Reintroduction of wild-type but not of catalytically deficient Ptpmt1 C132S or truncated Ptpmt1 lacking the mitochondrial localization signal restored the differentiation capabilities of Ptpmt1 knockout ES cells. Intriguingly, Ptpmt1 is specifically important for stem cells, as ablation of Ptpmt1 in differentiated embryonic fibroblasts did not disturb cellular function. Further analyses demonstrated that oxygen consumption of Ptpmt1-depleted cells was decreased, while glycolysis was concomitantly enhanced. In addition, mitochondrial fusion/dynamics were compromised in Ptpmt1 knockout cells due to accumulation of PIPs. These studies, while establishing a crucial role for Ptpmt1 phosphatase in embryogenesis, reveal a mitochondrial metabolic stress-activated checkpoint in the control of ES cell differentiation.