Reprogramming of somatic cells in the enucleated egg made Dolly, the sheep, the first successfully cloned mammal in 1996. However, the mechanism of sheep somatic cell reprogramming has not yet been addressed. Moreover, sheep embryonic stem (ES) cells are still not available, which limits the generation of precise gene-modified sheep. In this study, we report that sheep somatic cells can be directly reprogrammed to induced pluripotent stem (iPS) cells using defined factors (Oct4, Sox2, c-Myc, Klf4, Nanog, Lin28, SV40 large T and hTERT). Our observations indicated that somatic cells from sheep are more difficult to reprogram than somatic cells from other species, in which iPS cells have been reported. We demonstrated that sheep iPS cells express ES cell markers, including alkaline phosphatase, Oct4, Nanog, Sox2, Rex1, stage-specific embryonic antigen-1, TRA-1-60, TRA-1-81 and E-cadherin. Sheep iPS cells exhibited normal karyotypes and were able to differentiate into all three germ layers both in vitro and in teratomas. Our study may help to reveal the mechanism of somatic cell reprogramming in sheep and provide a platform to explore the culture conditions for sheep ES cells. Moreover, sheep iPS cells may be directly used to generate precise gene-modified sheep.