Transfer RNA (tRNA)-derived small RNAs (tsRNAs) have recently emerged as important regulators of protein translation and shown to have diverse biological functions. However, the underlying cellular and molecular mechanisms of tsRNA function in the context of dynamic cell-state transitions remain unclear. Expression analysis of tsRNAs in distinct heterologous cell and tissue models of stem vs. differentiated states revealed a differentiation-dependent enrichment of 5′-tsRNAs. We report the identification of a set of 5′-tsRNAs that is upregulated in differentiating mouse embryonic stem cells (mESCs). Notably, interactome studies with differentially enriched 5′-tsRNAs revealed a switch in their association with “effector” RNPs and “target” mRNAs in different cell states. We demonstrate that specific 5′-tsRNAs can preferentially interact with the RNA-binding protein, Igf2bp1, in the RA-induced differentiated state. This association influences the transcript stability and thereby translation of the pluripotency-promoting factor, c-Myc, thus providing a mechanistic basis for how 5′-tsRNAs can modulate stem cell states in mESCs. Together our study highlights the role of 5′-tsRNAs in defining distinct cell states.