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Abstract Inferring the governing dynamics of differentiation that capture cell state evolution remains a central challenge in single-cell bi… (see more)ology. We present Latent Space Dynamics (LSD), a thermodynamics-inspired framework that models cell differentiation as evolution on a learned Waddington landscape in latent space. LSD jointly infers a low-dimensional cell state, a differentiable potential function governing developmental flow, and a local entropy term that quantifies cellular plasticity. Using a neural ordinary differential equation, LSD reconstructs continuous differentiation trajectories from time-ordered single-cell data. Across diverse developmental systems, LSD accurately recovers lineage hierarchies, predicts fate commitment for unseen cell types, and outperforms existing trajectory inference approaches in directional accuracy. Moreover, in silico gene perturbations reveal how individual regulators reshape the landscape, and entropy provides a quantitative measure of plasticity in development and cancer.