Stem cell differentiation is accompanied by a gradual cellular morphogenesis and transcriptional changes. Identification of morphological regulators that control cell behavior during differentiation could shed light on how cell morphogenesis is coupled to transcriptional changes during development. By analyzing cellular behavior during differentiation of mouse embryonic stem cells (ESCs), we uncover a role of Borg5 (binder of Rho guanosine 5'-triphosphatase 5) in regulating trophectoderm (TE) cell morphogenesis. We report that differentiation of ESCs toward TE is accompanied by enhanced actin protrusion and cell motility that require upregulation of Borg5. Borg5 interacts with both Cdc42 and atypical protein kinase C (aPKC) and functions downstream of Cdc42 to enhance TE cell motility. Borg5 is required for the sorting of differentiating TE to the outside of ESCs in vitro. In developing embryos, Borg5 protein localizes to cell-cell contacts and the cytoplasm after compaction. It exhibits higher levels of expression in outer cells than in inner cells in morula and blastocysts. Reduction of Borg5 disrupts aPKC localization and inhibits blastocyst formation. Since Cdx2 and Borg5 facilitate each other's expression as ESCs differentiate toward TE, we propose that cell morphogenesis is coupled with transcriptional changes to regulate TE differentiation. Our studies also demonstrate the utility of ESCs in identifying morphological regulators important for development.