Histone methylation by lysine methyltransferase enzymes regulate the expression of genes implicated in lineage specificity and cellular differentiation. While it is known that Set7 catalyzes mono-methylation of histone and non-histone proteins, the functional importance of this enzyme in stem cell differentiation remains poorly understood. We show Set7 expression is increased during mouse embryonic stem cell (mESC) differentiation and is regulated by the pluripotency factors, Oct4 and Sox2. Transcriptional network analyses reveal smooth muscle (SM) associated genes are subject to Set7-mediated regulation. Furthermore, pharmacological inhibition of Set7 activity confirms this regulation. We observe Set7-mediated modification of serum response factor (SRF) and mono-methylation of histone H4 lysine 4 (H3K4me1) regulate gene expression. We conclude the broad substrate specificity of Set7 serves to control key transcriptional networks in embryonic stem cells. © The Author(s) 2016. Published by Oxford University Press on behalf of Nucleic Acids Research.