Germ cell fate in mice is induced in proximal epiblast cells by the extra-embryonic ectoderm, and is not acquired through the inheritance of any preformed germ plasm. To determine precisely how germ cells are specified, we performed a genetic screen between single nascent germ cells and their somatic neighbours that share common ancestry. Here we show that fragilis, an interferon-inducible transmembrane protein, marks the onset of germ cell competence, and we propose that through homotypic association, it demarcates germ cells from somatic neighbours. Using single-cell gene expression profiles, we also show that only those cells with the highest expression of fragilis subsequently express stella, a gene that we detected exclusively in lineage-restricted germ cells. The stella positive nascent germ cells exhibit repression of homeobox genes, which may explain their escape from a somatic cell fate and the retention of pluripotency.