Abstract For safe and efficient transplantation of embryonic stem cells (ESCs), it is important to reduce inflammatory and immune response by the host brain. Full activation of T cells in response to donor antigen requires the delivery of two separate but complimentary signals not only via T cell receptor following recognition of antigen, but also via antigen-nonspecific ligation of the costimulatory receptor–ligand pairs such as CD28:CD80/86. Cytotoxic T lymphocyte antigen 4 (CTLA4), structurally related to CD28, delivers an inhibitory signal after ligation to CD80/86, resulting in the termination of T cell immune responses. To investigate the role of this pathway in the survival and differentiation of neural progenitor cells (NPCs) from mouse ESCs, we transplanted the NPCs into mouse brains with or without CTLA4 immunogloblin (CTLA4-Ig). Immunohistochemical studies revealed that accumulation of inflammatory/immune cells in and around the graft was reduced by CTLA4-Ig. In contrast, the percentage of neurons in the graft was increased. These results suggest that CTLA4-Ig may promote neuronal differentiation during the treatment of neurological diseases with cell replacement therapy.