Integration of extrinsic signals, epigenetic regulators, and intrinsic transcription factors establishes pluripotent stem cell identity. Interplay between these components also underlies the capacity of stem cells to undergo differentiation, and of differentiated cells to re-establish the pluripotent state in direct reprogramming. Polycomb repressive complexes are epigenetic regulators that play key roles in stem cell identity and in differentiated cell fates. Smad2 and Smad3 (Smad2/3), the intracellular mediators of the Nodal/Activin/transforming growth factor (TGF) β cell-cell signaling pathway also are implicated in stem cell pluripotency and in differentiation. Here, we show that Polycomb imposes responses to Smad2/3-mediated signaling to selectively regulate expression of the master pluripotency factor Oct 4 during initiation of differentiation, but not in the self-renewing pluripotent ground state. During reprogramming back to the ground state, we find that the enhancement of reprogramming efficiency stemming from blocking Nodal/Activin/TGFβ signaling also depends on Polycomb. These context-dependent responses to Smad2/3 imposed by Polycomb action provide a mechanism for selective gene regulation that can reconcile the apparently conflicting roles of this signaling pathway in pluripotency, differentiation, and reprogramming.