Environmental arsenite exposure has been linked to cancer as well as other diseases, presenting an important and serious public health problem. Toxicity of inorganic arsenite (iAs) has been investigated using animal models and cell culture, yet its developmental effects are poorly understood. This study investigated the molecular mechanism of iAs toxicity to ascertain insight into development and differentiation processes using mouse embryonic stem cells (ESCs). The results showed that iAs exposure affected morphology and integrity of ESC colonies as well as inhibited cell growth in a concentration-dependent manner, excluding concentrations <1 μM iAs which stimulated ESC growth. ESCs self-renewal and pluripotency was also affected as evident from the downregulation of transcription circuitry, Oct4, Nanog, Sox2 and Klf4 resulting in non-specific differentiation. ESCs exposed to iAs randomly differentiated into three germ layers, mesoderm, endoderm and ectoderm, as judged by transcriptional expression of Brachyury, Gata4 and FGF2, as well as translational expression of BRACHYURY, GATA4 and TUJ1 respectively. The differentiated cells represented osteogenic, chondrogenic, myogenic and neurogenic lineages as evident from upregulation of Col1, Sox9, Col2, Myog, Notch, Nes and Nef. Although iAs caused slight apoptosis with a concomitant increase in ROS levels, the exposed ESCs had significant Bcl2 expression, which could be involved in the protection against apoptosis. Further analysis revealed upregulation of Jun and P38 in ESCs with an increase in iAs concentration. These observations indicated that iAs stress caused random differentiation of ESCs via JNK/P38 pathways. These findings suggest that iAs exposure may cause teratogenicity during early fetal development. Copyright © 2017 John Wiley & Sons, Ltd.