Demyelination contributes to the loss of function consequent to central nervous system (CNS) injury. Enhanced remyelination through transplantation of myelin-producing cells may offer a pragmatic approach to restoring meaningful neurological function. An unlimited source of cells suitable for such transplantation therapy can be derived from embryonic stem (ES) cells, which are both pluripotent and genetically flexible. In this paper we show that oligodendrocyte cultures can be reliably produced from retinoic acid-induced ES cells and that these oligodendrocytes can myelinate axons in vitro. Methods were further developed for generating highly enriched cultures of oligodendrocytes through an additional culturing step, producing an intermediate "oligosphere" stage. To test whether ES cells can survive, migrate, and differentiate into mature myelin-producing cells in areas of demyelination in the adult CNS, ES cells were transplanted into the dorsal columns of adult rat spinal cord 3 days after chemical demyelination. In the demyelination site, large numbers of ES cells survived and differentiated primarily into mature oligodendrocytes that were capable of myelinating axons. Furthermore, when oligosphere cells were transplanted into the spinal cords of myelin-deficient shiverer (shi/shi) mutant mice, the ES cell-derived oligodendrocytes migrated into the host tissue, produced myelin and myelinated host axons. These studies demonstrate the ability of ES cell-derived oligodendrocytes to myelinate axons in culture and to replace lost myelin in the injured adult CNS. Transplantation of ES cells may be a practical approach to treatment of primary and secondary demyelinating diseases in the adult CNS.