Abstract: The open chromatin of embryonic stem cells (ESCs) condenses into repressive heterochromatin as cells exit the pluripotent state. How the 3D genome organization is orchestrated and implicated in pluripotency and lineage specification is not understood. Here, we find that maturation of the long noncoding RNA (lncRNA) pRNA is required for establishment of heterochromatin at ribosomal RNA genes, the genetic component of nucleoli, and this process is inactivated in pluripotent ESCs. By using mature pRNA to tether heterochromatin at nucleoli of ESCs, we find that localized heterochromatin condensation of ribosomal RNA genes initiates establishment of highly condensed chromatin structures outside of the nucleolus. Moreover, we reveal that formation of such highly condensed, transcriptionally repressed heterochromatin promotes transcriptional activation of differentiation genes and loss of pluripotency. Our findings unravel the nucleolus as an active regulator of chromatin plasticity and pluripotency and challenge current views on heterochromatin regulation and function in ESCs.