Embryonic stem (ES) cells express pluripotency-associated genes and repress differentiation-inducible genes. The activities of these genes are coordinately reversed during differentiation. The changes in the transcriptome upon conditional KAP1 knockout in ES cells overlapped with the changes during embryoid body formation. KAP1 repressed differentiation-inducible genes and derepressed pluripotency-associated genes in ES cells. KAP1 formed complexes with polycomb repressive complexes 1 (PRC1) through an interaction that was mediated by the KAP1 coiled-coil region. KAP1 and PRC1 bound cooperatively at the promoters of differentiation-inducible genes and repressed their transcription. In contrast, KAP1 bound the transcribed and flanking sequences of pluripotency-associated genes, did not enhance PRC1 binding, and derepressed their transcription. KAP1 had opposite effects on differentiation-inducible and pluripotency-associated gene transcription both in ES cells and in differentiating embryoid bodies. The region of KAP1 that mediated the interaction with PRC1 was required for KAP1 enhancement of PRC1 binding and for KAP1 repression of transcription at differentiation-inducible promoters. This region of KAP1 was not required for KAP1 suppression of PRC1 binding or for KAP1 derepression of transcription at pluripotency-associated promoters. The opposite effects of KAP1 on the transcription of differentiation-inducible versus pluripotency-associated genes contributed to the reciprocal changes in their transcription during differentiation.