Human embryonic stem cells will remain undifferentiated or undergo differentiation when grown in conditioned or non-conditioned medium, respectively. The factors and signaling events that control the maintenance of the undifferentiated state are not well characterized and their identification is of major importance. Based on the data from global expression analyses, we set out to identify genes and the signaling pathways controlling them that are regulated in the early phase of the differentiation process. This study shows that nodal and the inhibitors of Nodal signaling, lefty-A and lefty-B, are down-regulated very early upon differentiation. High expression of these genes in undifferentiated cells is maintained by activation of the transcription factor Smad2/3, downstream of the activin-linked kinases (ALK) 4/5/7. Treatment of differentiating cells with Activin A leads to activation of Smad2/3 and expression of nodal, lefty-A and lefty-B, while inhibition of ALK4/5/7 by the kinase inhibitor SB-431542 blocks activation of Smad2/3 and expression of these genes in the undifferentiated state. In addition, when cells are maintained undifferentiated by treatment with the GSK3-inhibitor, BIO, high expression of nodal, lefty-A, and lefty-B also requires activation of ALK4/5/7. Conversely, BMP signaling leading to Smad1/5/8 activation via ALK2/3/6 is blocked in undifferentiated cells and becomes activated upon differentiation. Taken together, these observations establish that Smad2/3 is activated in undifferentiated hESCs and required for the expression of genes controlling Nodal signaling. Moreover, there appears to be cross-talk between inhibition of GSK3, a hallmark of Wnt signaling and the Activin/Nodal pathway.