Wnt/β-catenin signaling is required for embryonic stem cell (ESC) pluripotency by inducing mesodermal differentiation and inhibiting neuronal differentiation; however, how β-catenin counter-regulates these differentiation pathways is unknown. Here, we show that lysine 49 (K49) of β-catenin is trimethylated (β-catMe3) by Ezh2 or acetylated (β-catAc) by Cbp. Significantly, β-catMe3 acts as a transcriptional co-repressor of the neuronal differentiation genes sox1 and sox3, whereas β-catAc acts as a transcriptional co-activator of the key mesodermal differentiation gene t-brachyury (t-bra). Furthermore, β-catMe3 and β-catAc are alternatively enriched on repressed or activated genes, respectively, during ESC and adult stem cell differentiation into neuronal or mesodermal progenitor cell lineages. Importantly, expression of a β-catenin K49A mutant results in major defects in ESC differentiation. We conclude that β-catenin K49 trimethylation and acetylation are key elements in regulating ESC pluripotency and differentiation potential.