Recent breakthroughs in stem cell biology, especially the development of induced pluripotent stem cell technique, have generated tremendous enthusiasm and efforts to explore the therapeutic potential of stem cells in regenerative medicine. Improved understanding of stem cell biology, in addition to better control of stem cell fate, is critical to realize this potential. Small molecules, targeting specific signaling pathways and/or mechanisms, have been shown to be useful chemical tools in manipulating cell fate, state and function. These small molecules are starting to play increasingly important roles in both elucidating the fundamental biology of stem cells and facilitating the development of therapeutic approaches toward regenerative medicine. Such approaches could involve cell replacement therapies using homogenous functional cells produced under chemically defined conditions in vitro and the development of small-molecule drugs that can stimulate patients' endogenous cells to repair and regenerate. Here, we review recent progress in using small molecules to sustain pluripotency, or induce differentiation of embryonic stem cells. We also highlight small molecules that can replace transcription factors and/or enhance efficiency during somatic cell reprogramming.