Generation of induced pluripotent stem cells (iPSCs) by defined factors is an extremely inefficient process, because there is a strong epigenetic block preventing cells from achieving pluripotency. Here we report that virally expressed factors bound to the promoters of their target genes to the same extent in both iPSCs and unreprogrammed cells (URCs). However, expression of endogenous pluripotentcy genes was observed only in iPSCs. Comparison of local chromatin structure of the OCT4 locus revealed that there was a cohesin-complex-mediated intrachromosomal loop that juxtaposes a downstream enhancer to the gene's promoter, enabling activation of endogenous stemness genes. None of these long-range interactions were observed in URCs. Knockdown of the cohesin-complex gene SMC1 by RNAi abolished the intrachromosomal interaction and affected pluripotency. These findings highlight the importance of the SMC1-orchestrated intrachromosomal loop as a critical epigenetic barrier to the induction of pluripotency.