Cell identity is determined by the transcriptional regulation of a cell‐type‐specific gene group. The Paf1 complex (Paf1C), an RNA polymerase II‐associating factor, is an important transcriptional regulator that not only participates in transcription elongation and termination but also affects transcription‐coupled histone modifications and chromatin organisation. Recent studies have shown that Paf1C is involved in the expression of genes required for self‐renewal and pluripotency in stem cells and tumorigenesis. In this review, we focused on the role of Paf1C as a critical transcriptional regulator in cell fate decisions. Paf1C affects the pluripotency of stem cells by regulating the expression of core transcription factors such as Oct4 and Nanog. In addition, Paf1C directly binds to the promoters or distant elements of target genes, thereby maintaining the pluripotency in embryonic stem cells derived from an early stage of the mammalian embryo. Paf1C is upregulated in cancer stem cells, as compared with that in cancer cells, suggesting that Paf1C may be a target for cancer therapy. Interestingly, Paf1C is involved in multiple developmental stages in Drosophila, zebrafish, mice and even humans, thereby displaying a trend for the correlation between Paf1C and cell fate. Thus, we propose that Paf1C is a critical contributor to cell differentiation, cell specification and its characteristics and could be employed as a therapeutic target in developmental diseases.