Parkinson's disease (PD) is a neurodegenerative disorder characterized by the degeneration of dopaminergic (DA) neurons in the midbrain. Induced pluripotent stem (iPS) cells have shown potential for differentiation and may become a resource of functional neurons for the treatment of PD. However, teratoma formation is a major concern for transplantation-based therapies. This study examined whether functional neurons could be efficiently generated from iPS cells using a five-step induction procedure combined with docosahexaenoic acid (DHA) treatment. We demonstrated that DHA, a ligand for the RXR/Nurr1 heterodimer, significantly activated expression of the Nurr1 gene and the Nurr1-related pathway in iPS cells. DHA treatment facilitated iPS differentiation into tyrosine hydroxylase (TH)-positive neurons in vitro and in vivo and functionally increased dopamine release in transplanted grafts in PD-like animals. Furthermore, DHA dramatically upregulated the endogenous expression levels of neuroprotective genes (Bcl-2, Bcl-xl, brain-derived neurotrophic factor, and glial cell-derived neurotrophic factor) and protected against 1-methyl-4-phenyl-1,2,3,6-tetrahydropyridine (MPTP)-induced apoptosis in iPS-derived neuronal precursor cells. DHA-treated iPS cells significantly improved the behavior of 6-hydroxydopamine (6-OHDA)-treated PD-like rats compared to control or eicosapentaenoic acid-treated group. Importantly, the in vivo experiment suggests that DHA induces the differentiation of functional dopaminergic precursors and improves the abnormal behavior of 6-OHDA-treated PD-like rats by 4 months after transplantation. Furthermore, we found that DHA treatment in iPS cell-grafted rats significantly downregulated the mRNA expression of embryonic stem cell-specific genes (Oct-4 and c-Myc) in the graft and effectively blocked teratoma formation. Importantly, 3 Tesla-magnetic resonance imaging and ex vivo green fluorescence protein imaging revealed that no teratomas were present in transplanted grafts of DHA-treated iPS-derived DA neurons 4 months after implantation. Therefore, our data suggest that DHA plays a crucial role in iPS differentiation into functional DA neurons and that this approach could provide a novel therapeutic approach for PD treatment.