The differentiation of mouse embryonic stem cells (ESCs) is controlled by the interaction of multiple signaling pathways, typically mediated by post‐translational protein modifications. The addition of O‐linked N‐acetylglucosamine (O‐GlcNAc) to serine and threonine residues of nuclear and cytoplasmic proteins is one such modification (O‐GlcNAcylation), whose function in ESCs is only now beginning to be elucidated. Here, we demonstrate that the specific inhibition of O‐GlcNAc hydrolase (Oga) causes increased levels of protein O‐GlcNAcylation and impairs differentiation of mouse ESCs both in serum‐free monolayer and in embryoid bodies (EBs). Use of reporter cell lines demonstrates that Oga inhibition leads to a reduction in the number of Sox1‐expressing neural progenitors generated following induction of neural differentiation as well as maintained expression of the ESC marker Oct4 (Pou5f1). In EBs, expression of mesodermal and endodermal markers is also delayed. However, the transition of naïve cells to primed pluripotency indicated by Rex1 (Zfp42), Nanog, Esrrb, and Dppa3 downregulation and Fgf5 upregulation remains unchanged. Finally, we demonstrate that increased O‐GlcNAcylation results in upregulation of genes normally epigenetically silenced in ESCs, supporting the emerging role for this protein modification in the regulation of histone modifications and DNA methylation. Stem Cells 2014;32:2605–2615