Cell populations can be strikingly heterogeneous, composed of multiple cellular states, each exhibiting stochastic noise in its gene expression. A major challenge is to disentangle these two types of variability and to understand the dynamic processes and mechanisms that control them. Embryonic stem cells (ESCs) provide an ideal model system to address this issue because they exhibit heterogeneous and dynamic expression of functionally important regulatory factors. We analyzed gene expression in individual ESCs using single-molecule RNA-FISH and quantitative time-lapse movies. These data discriminated stochastic switching between two coherent (correlated) gene expression states and burst-like transcriptional noise. We further showed that the "2i" signaling pathway inhibitors modulate both types of variation. Finally, we found that DNA methylation plays a key role in maintaining these metastable states. Together, these results show how ESC gene expression states and dynamics arise from a combination of intrinsic noise, coherent cellular states, and epigenetic regulation.