The RNA-binding protein Musashi-1 (MSI1) regulates the proliferation and differentiation of adult stem cells. However, its role in embryonic stem cells (ESCs) and early embryonic development remains poorly understood. Here, we report the presence of short C-terminal MSI1 (MSI1-C) proteins in early mouse embryos and mouse ESCs, but not in human ESCs, under conventional culture conditions. In mouse embryos and mESCs, deletion of MSI1-C together with full-length MSI1 causes early embryonic developmental arrest and pluripotency dissolution. MSI1-C is induced upon naive induction and facilitates hESC naive pluripotency acquisition, elevating the pluripotency of primed hESCs toward a formative-like state. MSI1-C proteins are nuclear localized and bind to RNAs involved in DNA-damage repair (including MLH1, BRCA1, and MSH2), conferring on hESCs better survival in human-mouse interspecies cell competition and prolonged ability to form blastoids. This study identifies MSI1-C as an essential regulator in ESC pluripotency states and early embryonic development.