The histone demethylase lysine demethylase 5b (KDM5b) specifically demethylates lysine 4 of histone H3 (meH3K4), thereby repressing gene transcription. KDM5b regulates cell cycle control genes in cancer and is expressed in the early epiblast. This suggests that KDM5b plays a developmental role by maintaining uncommitted progenitors. Here we show that transient overexpression of KDM5b in embryonic stem cells decreases the expression of at least three different modulators of cell fate decisions, Egr1, p27(KIP1), and BMI1, by demethylation of their promoters. Constitutively increased KDM5b expression results in an increased mitotic rate and a decreased global 3meH3K4 but no change in cell identity. Results of two separate differentiation assays, neural differentiation and embryoid body EB (EB) formation, showed that KDM5b reduced the terminally differentiated cells and increased proliferating progenitors. These were achieved by two mechanisms, blocking of the upregulation of cell lineage markers and maintenance of cyclins, that allowed cells to escape differentiation and remain uncommitted. Additionally, EBs maintain high levels of Oct4 and Nanog and can be dissociated to reestablish highly proliferative cultures. The persistence of uncommitted progenitors may be due to the direct regulation of the Tcf/Lef family member mTcf3/hTcf7L1, an upstream regulator of Nanog expression. These findings demonstrate a role for KDM5b in the choice between proliferation and differentiation during development.