Abstract E-CADHERIN is abundantly expressed in embryonic stem cells (ESCs) and plays an important role in the maintenance of cell-cell adhesions. However, the exact function of this molecule beyond cell adhesion, in the context of cell fate decisions is largely unknown. Using mouse ESCs (mESCs), we demonstrate that E-CADHERIN and β- CATENIN interact at the membrane and continue to do so upon internalization within the cell. Knockout of the gene encoding E-CADHERIN, Cdh1 , in mESCs resulted in a failure to form tight colonies, accompanied by altered expression of differentiation markers, and retention of pluripotency factor expression during differentiation. Interestingly, Cdh1 -/- mESCs showed a dramatic reduction in β-CATENIN levels. Transcriptional profiling of Cdh1 -/- mESCs displayed a significant alteration in the expression of a subset of β-CATENIN targets, in a cell-state dependent manner. While treatment with a pharmacological inhibitor against GSK3β could rescue levels of β-CATENIN in Cdh1 -/- mESCs, expression of downstream targets were altered in a context-dependent manner, indicating an additional layer of regulation within this subset. Together, our results reveal the existence of a cell-state-dependent regulation of β-CATENIN and its transcriptional targets in an E-CADHERIN dependent manner. Our findings hint at hitherto unknown roles played by E- CADHERIN in regulating the activity of β-CATENIN in ESCs. Significance Statement Are cell adhesions only responsible for maintaining tissue architecture, or do they also regulate cell fate decisions during early embryonic stages by modulating the output of specific signalling pathways? In this study, we study the role of E- CADHERIN, a crucial component of cell-cell adhesions in the context of mouse embryonic stem cells (mESCs). We find that E-CADHERIN regulates the stability and activity of β-CATENIN in mESCs through physical interactions. However, the loss of E-CADHERIN affected the expression of only a subset of downstream targets of β-CATENIN in a cell-state dependent manner. This study highlights a critical cross-talk between molecules involved in cell-cell adhesion and the underlying signalling network critical for establishing cell fate during early mammalian development.