The Polycomb group (PcG) complex is involved in the epigenetic control of gene expression profiles. In flowering plants, PcG proteins regulate vegetative and reproductive programs. Epigenetically inherited states established in the gametophyte generation are maintained after fertilization in the sporophyte generation, having a profound influence on seed development. The gametophyte size and phase dominance were dramatically reduced during angiosperm evolution, and have specialized in flowering plants to support the reproductive process. The moss Physcomitrella patens is an ideal organism in which to study epigenetic processes during the gametophyte stage, as it possesses a dominant photosynthetic gametophytic haploid phase and efficient homologous recombination, allowing targeted gene replacement. We show that P. patens PcG protein FIE (PpFIE) accumulates in haploid meristematic cells and in cells that undergo fate transition during dedifferentiation programs in the gametophyte. In the absence of PpFIE, meristems overproliferate and are unable to develop leafy gametophytes or reach the reproductive phase. This aberrant phenotype might result from failure of the PcG complex to repress proliferation and differentiation of three-faced apical stem cells, which are designated to become lateral shoots. The PpFIE phenotype can be partially rescued by FIE of Arabidopsis thaliana, a flowering plant that diverged >450 million years ago from bryophytes. PpFIE can partially complement the A. thaliana fie mutant, illustrating functional conservation of the protein during evolution in regulating the differentiation of meristematic cells in gametophyte development, both in bryophytes and angiosperms. This mechanism was harnessed at the onset of the evolution of alternating generations, facilitating the establishment of sporophytic developmental programs.