The Polycomb repressive complexes PRC1 and PRC2 act non-redundantly at target genes to maintain transcriptional programs and ensure cellular identity. PRC2 methylates lysine 27 on histone H3 (H3K27me), while PRC1 mono-ubiquitinates histone H2A at lysine 119 (H2Aub1). Here we present engineered mouse embryonic stem cells (ESCs) targeting the PRC2 subunits EZH1 and EZH2 to discriminate between contributions of distinct H3K27 methylation states and the presence of PRC2/1 at chromatin. We generate catalytically inactive EZH2 mutant ESCs, demonstrating that H3K27 methylation, but not recruitment to the chromatin, is essential for proper ESC differentiation. We further show that EZH1 activity is sufficient to maintain repression of Polycomb targets by depositing H3K27me2/3 and preserving PRC1 recruitment. This occurs in the presence of altered H3K27me1 deposition at actively transcribed genes and by a diffused hyperacetylation of chromatin that compromises ESC developmental potential. Overall, this work provides insights for the contribution of diffuse chromatin invasion by acetyltransferases in PRC2-dependent loss of developmental control.