It is understood that retinoic acid (RA), sonic hedgehog (Shh) and bone morphogenic proteins (BMPs) play an important role in cell fate determination and the specification of inter-neurons and motor neurons along the dorsal-ventral axis in the neural tube. In this study, we investigated the function of these signalling molecules to instruct the differentiation of human pluripotent stem cells to form specific neuronal subtypes. TERA2.cl.SP12 embryonal carcinoma (EC) cells are a robust caricature of human embryogenesis and an accepted model of neural differentiation. Gene and protein expression analyses using RT-PCR, western blotting and immunocytochemical techniques indicated that human EC cells respond to RA, BMPs and Shh in a conserved manner and regulate neural transcription factors and structural proteins in a predicted way as cells commit toward the motor neuron phenotype. To assess the function of these differentiated neurons, we tested their ability to innervate skeletal muscle myotubes and induce muscle cell contraction. Myotubes contracted only when cocultured with neurons. The number of contractile events increased significantly when cells differentiated into motor neurons were cocultured with myotubes compared to cocultures with cells that formed intemeurons. Staining for α-bungarotoxin showed positive staining in a pattern characteristic of boutons found in neuromuscular junctions. We also showed that muscle contraction could be manipulated pharmacologically: curare and atropine blocked myotube contraction, whereas acetylcholine and carbachol increased the number of contractile events. In other experiments, we have also shown that cells exposed to RA and Shh in conjunction with other growth factors over different time periods, preferentially form oligodendrocytes and/or interneurons. These results indicate it is feasible to control and direct the differentiation of human stem cells and produce specific neuron subtypes in vitro. Furthermore, this system acts as a useful model to investigate the molecular mechanisms and signalling pathways that control neural differentiation in man.