Polycomb Repressive Complex 2 (PRC2) is an essential chromatin regulator responsible for mono-, di- and tri- methylating H3K27. Control of PRC2 activity is a critical process in development and disease. While PRC2 is inhibited in germinal cells, no inhibitory cofactor has been identified in somatic cells. Here we show that the alternative isoforms of its accessory subunit AEBP2, namely AEPB2S (short) and AEBP2L (long), perform opposite functions in modulating PRC2 activity. While AEPB2S is predominantly expressed during early embryogenesis, AEBP2L is expressed throughout embryogenesis and adulthood. AEPB2L inhibits both DNA binding by PRC2 and its histone methyltransferase activity in vitro and impairs PRC2 binding to target genes in embryonic stem cells. In contrast, AEBP2S promotes the DNA-binding activity of PRC2 and is essential for de novo repression of target genes during the transition from naïve to primed pluripotency. Mechanistically, through high-resolution Cryo-EM and mutagenesis, we show that the recently evolved, negatively charged N-terminal region of AEBP2L inhibits PRC2. We propose a model in which the N-terminus of AEPB2L arose in vertebrates to restrain PRC2 in somatic cells.