During embryogenesis, the Activin/Nodal pathway promotes the mesendodermal lineage and inhibits neural fate. The molecular mechanisms underlying this role of the Activin/Nodal pathway are not clear. In this study, we report a role for protein tyrosine phosphatase 1B (PTP1B) in Activin-mediated early fate decisions during ESC differentiation and show that PTP1B acts as an effector of the Activin pathway to specify mesendodermal or neural fate. We found that the Activin/ALK4 pathway directly recruits PTP1B and stimulates its release from the endoplasmic reticulum through ALK4-mediated cleavage. Subsequently, PTP1B suppresses p-ERK1/2 signaling to inhibit neural specification and promote mesendodermal commitment. These findings suggest that a noncanonical Activin signaling pathway functions in lineage specification of mouse and human embryonic stem cells. Display omitted •SB431542-mediated neural induction occurs via p-Erk(ERK)1/2 signaling•PTP1B, an effector of the Activin/Alk(ALK)4 pathway, regulates p-Erk(ERK)1/2•Activin-triggered PTP1B cleavage is mediated by Alk(ALK)4•PTP1B promotes mesendodermal fate and inhibits the neural lineage A noncanonical Activin pathway promotes mesendodermal specification of mouse and human embryonic stem cells.