During development, cell differentiation is associated to large-scale modifications in the methylome, which require the engagement of an active DNA demethylation machinery including Ten-Eleven-Translocation enzymes for oxidation of 5-methylcytosine and the T:G mismatch DNA glycosylase (TDG) for removal of the oxidized bases. Despite this well-defined molecular function, the biological output of TDG activity remains elusive. Here we combined transcriptomic and epigenomic approaches in TDG knock-out embryonal carcinoma cells, an epiblast stem-like cell model, to decipher TDG function in pluripotent cells and their retinoic acid-induced differentiated progeny. We determined that TDG activity is balancing differentiation in favor of a neural fate at the expense of a cardiac mesoderm fate. This process is associated with a sustained activity of a large set of ATF4-dependent genes in relation with a TDG-mediated nucleosome positioning at promoters and in conjunction with a TDG- dependent regulation of the mammalian target of rapamycin complex 1. These observations highlight the central role of TDG in cell differentiation and support a model linking metabolic reprogramming to cell fate acquisition.