Human embryonic stem cells and mouse epiblast stem cells represent a primed pluripotent stem cell state that requires TGF-β/activin signaling. TGF-β and/or activin are commonly thought to regulate transcription through both Smad2 and Smad3. However, the different contributions of these two Smads to primed pluripotency and the downstream events that they may regulate remain poorly understood. We addressed the individual roles of Smad2 and Smad3 in the maintenance of primed pluripotency. We found that Smad2, but not Smad3, is required to maintain the undifferentiated pluripotent state. We defined a Smad2 regulatory circuit in human embryonic stem cells and mouse epiblast stem cells, in which Smad2 acts through binding to regulatory promoter sequences to activate Nanog expression while in parallel repressing autocrine bone morphogenetic protein signaling. Increased autocrine bone morphogenetic protein signaling caused by Smad2 down-regulation leads to cell differentiation toward the trophectoderm, mesoderm, and germ cell lineages. Additionally, induction of Cdx2 expression, as a result of decreased Smad2 expression, leads to repression of Oct4 expression, which, together with the decreased Nanog expression, accelerates the loss of pluripotency. These findings reveal that Smad2 is a unique integrator of transcription and signaling events and is essential for the maintenance of the mouse and human primed pluripotent stem cell state.