Pluripotent human embryonal carcinoma NTera2/cloneD1 (NT2/D1) cells respond to multiple vertebrate patterning factors and offer a unique model system to investigate the signaling events associated with lineage determination and cell differentiation. Here, we define the temporal changes in global gene expression patterns in NT2/D1 cells upon treatment with bone morphogenetic protein-2 (BMP-2). Exposure to BMP-2 rapidly induced the expression of several transcription factors involved in establishing non-neural ectodermal fate followed by the appearance of epithelial-specific markers. Subsequent loss of stem cell markers was coupled to gene expression changes associated with decreased proliferative activity. Temporal clustering of gene expression patterns revealed a concurrent down-regulation of multiple transcripts involved in neurogenesis, neurite outgrowth, and axonal guidance, suggesting that the BMP-mediated differentiation process involves pro-epithelial as well as anti-neurogenic mechanisms. In addition, increased expression of smooth muscle markers both by gene expression and immunohistochemistry was detected. Several neural crest markers were induced preceding such a differentiation, compatible with a neural crest origin of NT2/D1-derived smooth muscle cells. Comparison of changes in transcript expression between BMP-2-induced epithelial versus all-trans-retinoic acid (ATRA)-induced neural differentiation revealed potential candidates for regulation of BMP-2 signaling and suppression of neural fate by BMP-2. This study suggests that BMP-2-induced differentiation of NT2/D1 cells provides a powerful assay to study early human epithelial and smooth muscle development.