Oligodendrocytes are post-mitotic cells that myelinate axons in the vertebrate central nervous system (CNS). They develop from proliferating oligodendrocyte precursor cells (OPCs), which arise in germinal zones, migrate throughout the developing white matter and divide a limited number of times before they terminally differentiate. Thus far, it has been possible to purify OPCs only from the rat optic nerve, but the purified cells cannot be obtained in large enough numbers for conventional biochemical analyses. Moreover, the CNS stem cells that give rise to OPCs have not been purified, limiting one's ability to study the earliest stages of commitment to the oligodendrocyte lineage. Pluripotent, mouse embryonic stem (ES) cells can be propagated indefinitely in culture and induced to differentiate into various cell types. We have genetically engineered ES cells both to positively select neuroepithelial stem cells and to eliminate undifferentiated ES cells. We have then used combinations of known signal molecules to promote the development of OPCs from selected, ES-cell-derived, neuroepithelial cells. We show that the earliest stages of oligodendrocyte development follow an ordered sequence that is remarkably similar to that observed in vivo, suggesting that the ES-cell-derived neuroepithelial cells follow a normal developmental pathway to produce oligodendrocytes. These engineered ES cells thus provide a powerful system to study both the mechanisms that direct CNS stem cells down the oligodendrocyte pathway and those that influence subsequent oligodendrocyte differentiation. This strategy may also be useful for producing human cells for therapy and drug screening.