Stem cells are capable of unlimited proliferation but can be induced to form brain cells. Factors that specifically regulate human development are poorly understood. We found that human stem cells expressed high levels of the envelope protein of an endogenized human-specific retrovirus (HERV-K, HML-2) from loci in chromosomes 12 and 19. The envelope protein was expressed on the cell membrane of the stem cells and was critical in maintaining the stemness via interactions with CD98HC, leading to triggering of human-specific signaling pathways involving mammalian target of rapamycin (mTOR) and lysophosphatidylcholine acyltransferase (LPCAT1)–mediated epigenetic changes. Down-regulation or epigenetic silencing of HML-2 env resulted in dissociation of the stem cell colonies and enhanced differentiation along neuronal pathways. Thus HML-2 regulation is critical for human embryonic and neurodevelopment, while it’s dysregulation may play a role in tumorigenesis and neurodegeneration.