Because of their undifferentiated nature, human embryonic stem cells (hESCs) are an ideal model system for studying both normal human development and the processes that underlie disease. In the current study, we describe an efficient method for differentiating hESCs into a melanocyte population within 4-6 weeks using three growth factors: Wnt3a, endothelin-3, and stem cell factor. The hESC-derived melanocytes expressed melanocyte markers (such as microphthalmia-associated transcription factor and tyrosinase), developed melanosomes, and produced melanin. They retained the melanocyte phenotype during long-term cell culture (>90 days) and, when incorporated into human reconstructed skin, homed to the appropriate location along the basement membrane in the same manner as epidermis-derived melanocytes. They maintained a stable phenotype even after grafting of the reconstructs to immunodeficient mice. Over time in culture, the hESC-derived melanocytes lost expression of telomerase and underwent senescence. In summary, we have shown for the first time the differentiation of hESCs into melanocytes. This method provides a novel in vitro system for studying the development biology of human melanocytes.