Cellular differentiation entails reprogramming of the transcriptome from a pluripotent to a unipotent fate. This process was suggested to coincide with a global increase of repressive heterochromatin, which results in a reduction of transcriptional plasticity and potential. Here we report the dynamics of the transcriptome and an abundant heterochromatic histone modification, dimethylation of histone H3 at lysine 9 (H3K9me2), during neuronal differentiation of embryonic stem cells. In contrast to the prevailing model, we find H3K9me2 to occupy over 50% of chromosomal regions already in stem cells. Marked are most genomic regions that are devoid of transcription and a subgroup of histone modifications. Importantly, no global increase occurs during differentiation, but discrete local changes of H3K9me2 particularly at genic regions can be detected. Mirroring the cell fate change, many genes show altered expression upon differentiation. Quantitative sequencing of transcripts demonstrates however that the total number of active genes is equal between stem cells and several tested differentiated cell types. Together, these findings reveal high prevalence of a heterochromatic mark in stem cells and challenge the model of low abundance of epigenetic repression and resulting global basal level transcription in stem cells. This suggests that cellular differentiation entails local rather than global changes in epigenetic repression and transcriptional activity.