The potential to generate functional pancreatic beta cells or liver cells from human embryonic stem cells provides a promising avenue for cell replacement therapies for treatment of diabetes and chronic liver disease, respectively. Despite progress, beta cells and liver cells produced from stem cells still lack many of the characteristics of normal human beta or liver cells. Pancreas and liver arise from a common precursor cell and organ specific-inductive signals must act upon these precursor cells to activate either pancreas- or liver-specific genes. However, the molecular mechanisms controlling pancreas versus liver fate decisions are not understood. Here, we employed a human embryonic stem cell (hESC) differentiation system toward pancreas and liver to examine if cell fate decisions could be determined by the state of enhancers: regulatory DNA sequences that, when bound by transcription factors, enhance gene transcription. We show that pancreas- and liver-specific enhancers of these precursor cells are in a “poised” state for activation. When precursor cells are exposed to inductive factors, this leads to rapid changes in the chromatin structure of these enhancers. These changes render the cell competent to appropriately respond to inductive signals by allowing accessibility of the DNA to lineage-specifying transcription factors and activation of either pancreas- or liver-specific genes. Over the next year, we will continue our research on defining how transcription factors and chromatin structure cooperatively shape a transcriptionally permissive enhancer landscape prior to gene activation. Our studies will be instrumental in improving the quality and efficiency of cell differentiation of hESCs and other cell sources.