Epigenetic regulation of chromatin plays a critical role in controlling embryonic stem (ES) cell self-renewal and pluripotency. However, the roles of histone demethylases and activating histone modifications such as trimethylated histone 3 lysine 4 (H3K4me3) in transcriptional events such as RNA polymerase II (RNAPII) elongation and alternative splicing are largely unknown. In this study, we show that KDM5B, which demethylates H3K4me3, plays an integral role in regulating RNAPII occupancy, transcriptional initiation and elongation, and alternative splicing events in ES cells. Depletion of KDM5B leads to altered RNAPII promoter occupancy, and decreased RNAPII initiation and elongation rates at active genes and at genes marked with broad H3K4me3 domains. Moreover, our results demonstrate that spreading of H3K4me3 from promoter to gene body regions, which is mediated by depletion of KDM5B, modulates RNAPII elongation rates and RNA splicing in ES cells. We further show that KDM5B is enriched nearby alternatively spliced exons, and depletion of KDM5B leads to altered levels of H3K4 methylation in alternatively spliced exon regions, which is accompanied by differential expression of these alternatively splice exons. Altogether, our data indicate an epigenetic role for KDM5B in regulating RNAPII elongation and alternative splicing, which may support the diverse mRNA repertoire in ES cells.