MicroRNAs (miRNAs) are important regulators of cell fate decisions, while the miRNAs and their targets in the regulation of stem cell differentiation are largely unidentified. Here we report novel functions of miR-125b/Lin28 axis in the regulation of mouse embryonic stem cell (mESC) lineage specification and cardiomyocyte differentiation. With a MicroRNA Array screen, we identified a number of miRNAs significantly changed during ESC differentiation, among which miR-125b showed a marked reduction during early differentiation. The abundantly expressed miR-125b in undifferentiated mESCs was dramatically downregulated to a level hardly detected during differentiation day 3 to 5, with a concomitant upregulation of Lin28. Ectopically expressing miR-125b did not alter characteristics of undifferentiated mESCs, whereas it impaired the endoderm and mesoderm development, but not the ectoderm, and inhibited cardiomyocyte formation. We further demonstrate that miR-125b targeted the 3'-untranslated region of Lin28 and reduced the abundance of Lin28 at both mRNA and protein levels. Moreover, phenotypes of miR-125b overexpressing cells were mimicked by downregulation of Lin28 and rescued by reintroduction of Lin28. In addition, the impaired cardiogenesis in miR-125b-introduced cells was greatly recovered when mimicking endoderm environment by cultivation with the condition medium from a visceral endoderm-like cell line, END-2. These results reveal that the miR-125b/Lin28 axis is an important regulator of early lineage specification and cardiomyocyte differentiation of ESCs.