Dynamic changes in mechanical microenvironments, such as cell crowding, regulate lineage fates as well as cell proliferation. Although regulatory mechanisms for contact inhibition of proliferation have been extensively studied, it remains unclear how cell crowding induces lineage specification. Here we found that a well-known oncogene, ETS variant transcription factor 4 (ETV4), serves as a molecular transducer that links mechanical microenvironments and gene expression. In a growing epithelium of human embryonic stem cells, cell crowding dynamics is translated into ETV4 expression, serving as a pre-pattern for future lineage fates. A switch-like ETV4 inactivation by cell crowding derepresses the potential for neuroectoderm differentiation in human embryonic stem cell epithelia. Mechanistically, cell crowding inactivates the integrin-actomyosin pathway and blocks the endocytosis of fibroblast growth factor receptors (FGFRs). The disrupted FGFR endocytosis induces a marked decrease in ETV4 protein stability through ERK inactivation. Mathematical modelling demonstrates that the dynamics of cell density in a growing human embryonic stem cell epithelium precisely determines the spatiotemporal ETV4 expression pattern and, consequently, the timing and geometry of lineage development. Our findings suggest that cell crowding dynamics in a stem cell epithelium drives spatiotemporal lineage specification using ETV4 as a key mechanical transducer.