The Zinc-finger protein of the cerebellum 2 (Zic2) is one of the vertebrate homologs of the Drosophila pair-rule gene odd-paired (opa). Our molecular and biochemical studies demonstrate that Zic2 preferentially binds to transcriptional enhancers and is required for the regulation of gene expression in embryonic stem cells. Detailed genome-wide and molecular studies reveal that Zic2 can function with Mbd3/NuRD in regulating the chromatin state and transcriptional output of genes linked to differentiation. Zic2 is required for proper differentiation of embryonic stem cells (ESCs), similar to what has been previously reported for Mbd3/NuRD. Our study identifies Zic2 as a key factor in the execution of transcriptional fine-tuning with Mbd3/NuRD in ESCs through interactions with enhancers. Our study also points to the role of the Zic family of proteins as enhancer-specific binding factors functioning in development. Display omitted •Zic2 preferentially occupies enhancer regions in mouse ESCs•Zic2 interacts with Mbd3/NuRD in mouse ESCs•Zic2 and Mbd3/NuRD function together to regulate transcription•Zic2 is required for ESC specification Zic family proteins have previously been implicated as major regulators of neuroectodermal development from Drosophila to humans. Luo et al. identify Zic2 as an enhancer-binding cofactor that can function with the Mbd3-NuRD chromatin remodeling complex to regulate the ESC chromatin state and cell lineage specification.