Exposure to thalidomide during a critical window of development results in limb defects in humans and non-human primates while mice and rats are refractory to these effects. Thalidomide-induced teratogenicity is dependent on its binding to cereblon (CRBN), the substrate receptor of the Cul4A-DDB1-CRBN-RBX1 E3 ubiquitin ligase complex. Thalidomide binding to CRBN elicits subsequent ubiquitination and proteasomal degradation of CRBN neosubstrates including SALL4, a transcription factor of which polymorphisms phenocopy thalidomide-induced limb defects in humans. Herein, thalidomide-induced degradation of SALL4 was examined in human induced pluripotent stem cells (hiPSCs) that were differentiated either to lateral plate mesoderm (LPM)-like cells, the developmental ontology of the limb bud, or definitive endoderm. Thalidomide and its immunomodulatory drug (IMiD) analogs, lenalidomide, and pomalidomide, dose-dependently inhibited hiPSC mesendoderm differentiation. Thalidomide- and IMiD-induced SALL4 degradation can be abrogated by CRBN V388I mutation or SALL4 G416A mutation in hiPSCs. Genetically modified hiPSCs expressing CRBN E377V/V388I mutant or SALL4 G416A mutant were insensitive to the inhibitory effects of thalidomide, lenalidomide, and pomalidomide on LPM differentiation while retaining sensitivity to another known limb teratogen, all-trans retinoic acid (atRA). Finally, disruption of LPM differentiation by atRA or thalidomide perturbed subsequent chondrogenic differentiation in vitro. The data here show that thalidomide, lenalidomide, and pomalidomide affect stem cell mesendoderm differentiation through CRBN-mediated degradation of SALL4 and highlight the utility of the LPM differentiation model for studying the teratogenicity of new CRBN modulating agents.