Epigenetic control of genes that are silent in embryonic stem cells, but destined for expression during differentiation, includes distinctive hallmarks, such as simultaneous activating/repressing (bivalent) modifications of chromatin and DNA hypomethylation at enhancers of gene expression. Although alpha-fetoprotein (Afp) falls into this class of genes, as it is silent in pluripotent stem cells and activated during differentiation of endoderm, we find that Afp chromatin lacks bivalent histone modifications. However, critical regulatory sites for Afp activation, overlapping Foxa1/p53/Smad-binding elements, are located within a 300-bp region lacking DNA methylation, due to transposed elements underrepresented in CpG sequences: a short interspersed transposable element and a medium reiterated sequence 1 element. Forkhead family member Foxa1 is activated by retinoic acid treatment of embryonic stem cells, binds its DNA consensus site within the short interspersed transposable/medium reiterated sequence 1 elements, and displaces linker histone H1 from silent Afp chromatin. Small interfering RNA depletion of Foxa1 showed that Foxa1 is essential in providing chromatin access to transforming growth factor beta-activated Smad2 and Smad4 and their subsequent DNA binding. Together these transcription factors establish highly acetylated chromatin and promote expression of Afp. Foxa1 acts as a pioneer transcription factor in de novo activation of Afp, by exploiting a lack of methylation at juxtaposed transposed elements, to bind and poise chromatin for intersection with transforming growth factor beta signaling during differentiation of embryonic stem cells.