Human embryonic stem (hES) cells, due to their capacity of multipotency and self‐renewal, may serve as a valuable experimental tool for human developmental biology and may provide an unlimited cell source for cell replacement therapy. The purpose of this study was to assess the developmental potential of hES cells to replace the selectively lost midbrain dopamine (DA) neurons in Parkinson's disease. Here, we report the development of an in vitro differentiation protocol to derive an enriched population of midbrain DA neurons from hES cells. Neural induction of hES cells co‐cultured with stromal cells, followed by expansion of the resulting neural precursor cells, efficiently generated DA neurons with concomitant expression of transcriptional factors related to midbrain DA development, such as Pax2, En1 (Engrailed‐1), Nurr1, and Lmx1b. Using our procedure, the majority of differentiated hES cells (> 95%) contained neuronal or neural precursor markers and a high percentage (> 40%) of TuJ1+ neurons was tyrosine hydroxylase (TH)+, while none of them expressed the undifferentiated ES cell marker, Oct 3/4. Furthermore, hES cell‐derived DA neurons demonstrated functionality in vitro, releasing DA in response to KCl‐induced depolarization and reuptake of DA. Finally, transplantation of hES‐derived DA neurons into the striatum of hemi‐parkinsonian rats failed to result in improvement of their behavioral deficits as determined by amphetamine‐induced rotation and step‐adjustment. Immunohistochemical analyses of grafted brains revealed that abundant hES‐derived cells (human nuclei+ cells) survived in the grafts, but none of them were TH+. Therefore, unlike those from mouse ES cells, hES cell‐derived DA neurons either do not survive or their DA phenotype is unstable when grafted into rodent brains.