Germ cells, the embryonic precursors of sperm or oocytes, respond to molecular cues that regulate their sex-specific development in the fetal gonads. In males in particular, the balance between continued proliferation and cell fate commitment is crucial: defects in proliferation result in insufficient spermatogonial stem cells for fertility, but escape from commitment and prolonged pluripotency can cause testicular germ cell tumors. However, the factors that regulate this balance remain unidentified. Here, we show that signaling by the TGFβ morphogen Nodal and its co-receptor Cripto is active during a crucial window of male germ cell development. The Nodal pathway is triggered when somatic signals, including FGF9, induce testicular germ cells to upregulate Cripto. Germ cells of mutant mice with compromised Nodal signaling showed premature differentiation, reduced pluripotency marker expression and a reduced ability to form embryonic germ (EG) cell colonies in vitro. Conversely, human testicular tumors showed upregulation of NODAL and CRIPTO that was proportional to invasiveness and to the number of malignant cells. Thus, Nodal signaling provides a molecular control mechanism that regulates male germ cell potency in normal development and testicular cancer.