During embryonic development cells acquire identity as they proliferate, implying that an intrinsic facet of cell fate choice requires coupling lineage decisions to cell division. How is the cell cycle regulated to promote or suppress heterogeneity and differentiation? We explore this question combining time lapse imaging with single-cell RNA-seq in the contexts of self-renewal, priming, and differentiation of mouse embryonic stem cells (ESCs) towards the Primitive Endoderm (PrE) lineage. Since ESCs are derived from the inner cell mass (ICM) of the mammalian blastocyst, ESCs in standard culture conditions are transcriptionally heterogeneous containing dynamically interconverting subfractions primed for either of the two ICM lineages, Epiblast and PrE. Here, we find that differential regulation of cell cycle can tip the balance between these primed populations, such that naive ESC culture promotes Epiblast-like expansion and PrE differentiation stimulates the selective survival and proliferation of PrE-primed cells. In endoderm differentiation, this change is accompanied by a counter-intuitive increase in G1 length, also observed in vivo. While fibroblast growth factor/extracellular signal-regulated kinase (FGF/ERK) signalling is a key regulator of ESC differentiation and PrE specification, we find it is not just responsible for ESCs heterogeneity, but also the inheritance of similar cell cycles between sisters and cousins. Taken together, our results indicate a tight relationship between transcriptional heterogeneity and cell cycle regulation in lineage specification, with primed cell populations providing a pool of flexible cell types that can be expanded in a lineage-specific fashion while allowing plasticity during early determination.