Histone demethylation has important roles in regulating gene expression and forms part of the epigenetic memory system that regulates cell fate and identity by still poorly understood mechanisms. Here, we examined the role of histone demethylase Kdm3a during cell differentiation, showing that Kdm3a is essential for differentiation into parietal endoderm-like (PE) cells in the F9 mouse embryonal carcinoma model. We identified a number of target genes regulated by Kdm3a during endoderm differentiation; among the most dysregulated were the three developmental master regulators Dab2, Pdlim4 and FoxQ1. We show that dysregulation of the expression of these genes correlates with Kdm3a H3K9me2 demethylase activity. We further demonstrate that either Dab2 depletion or Kdm3a depletion prevents F9 cells from fully differentiating into PE cells, but that ectopic expression of Dab2 cannot compensate for Kdm3a knockdown; Dab2 is thus necessary, but insufficient on its own, to promote complete terminal differentiation. We conclude that Kdm3a plays a crucial role in progression through PE differentiation by regulating expression of a set of endoderm differentiation master genes. The emergence of Kdm3a as a key modulator of cell fate decision strengthens the view that histone demethylases are essential to cell differentiation.