Epithelial-mesenchymal transition (EMT) events occur during embryonic development and are important for the metastatic spread of epithelial tumors. We show here that spontaneous differentiation of mouse embryonic stem (ES) cells is associated with an E- to N-cadherin switch, up-regulation of E-cadherin repressor molecules (Snail and Slug proteins), gelatinase activity (matrix metalloproteinase [MMP]-2 and -9), and increased cellular motility, all characteristic EMT events. The 5T4 oncofetal antigen, previously shown to be associated with very early ES cell differentiation and altered motility, is also a part of this coordinated process. E- and N-cadherin and 5T4 proteins are independently regulated during ES cell differentiation and are not required for induction of EMT-associated transcripts and proteins, as judged from the study of the respective knockout ES cells. Further, abrogation of E-cadherin-mediated cell-cell contact in undifferentiated ES cells using neutralizing antibody results in a reversible mesenchymal phenotype and actin cytoskeleton rearrangement that is concomitant with translocation of the 5T4 antigen from the cytoplasm to the cell surface in an energy-dependent manner. E-cadherin null ES cells are constitutively cell surface 5T4 positive, and although forced expression of E-cadherin cDNA in these cells is sufficient to restore cell-cell contact, cell surface expression of 5T4 antigen is unchanged. 5T4 and N-cadherin knockout ES cells exhibit significantly decreased motility during EMT, demonstrating a functional role for these proteins in this process. We conclude that E-cadherin protein stabilizes cortical actin cytoskeletal arrangement in ES cells, and this can prevent cell surface localization of the promigratory 5T4 antigen.