Embryonic stem (ES) cells present an excellent system for addressing the relevance of our current knowledge about how cell fate is determined and how cells integrate multiple signals into a single outcome as a function of time. Many of the factors that mediate these phenomena have been discovered through classical embryological experiments and are organized into several major signal transduction pathways including TGF-beta/BMP, Jak-STAT, Hedgehog, Wnt, Notch and FGF/MAPK. This review will summarize the current understanding of TGF-beta signaling in ES and focus on early embryological roles of the TGF-beta member, GDF-3. GDF-3 is associated with the undifferentiated state of ES cells and two recent and contradictory reports examined the function and mechanism of GDF-3 in the context of both stem cells and early embryonic differentiations. While Levine and Brivanlou found that GDF-3 inhibits its own subfamily members (the BMPs), Chen and colleagues found that GDF-3 acts as a nodal-like TGF-beta ligand. These combined findings raise the intriguing possibility that GDF-3 acts as a bi-functional protein, to regulate the balance between the two modes of TGF-beta signaling.