TRIM71/LIN-41, a phylogenetically conserved regulator of development, controls stem cell fates. Mammalian TRIM71 exhibits both RNA-binding and protein ubiquitylation activities, but the functional contribution of either activity and relevant primary targets remain poorly understood. Here, we demonstrate that TRIM71 shapes the transcriptome of mouse embryonic stem cells (mESCs) predominantly through its RNA-binding activity. We reveal that TRIM71 binds targets through 3′ untranslated region (UTR) hairpin motifs and that it acts predominantly by target degradation. TRIM71 mutations implicated in etiogenesis of human congenital hydrocephalus impair target silencing. We identify a set of primary targets consistently regulated in various human and mouse cell lines, including MBNL1 (Muscleblind-like protein 1). MBNL1 promotes cell differentiation through regulation of alternative splicing, and we demonstrate that TRIM71 promotes embryonic splicing patterns through MBNL1 repression. Hence, repression of MBNL1-dependent alternative splicing may contribute to TRIM71's function in regulating stem cell fates.