Elucidating the molecular mechanisms leading to the induction and specification of thyroid follicular cells is important for our understanding of thyroid development. To characterize the key events in this process, we previously established an experimental embryonic stem (ES) cell model system, which shows that wild-type mouse CCE ES cells can give rise to thyrocyte-like cells in vitro. We extend our analysis in this report by using a genetically manipulated ES cell line in which green fluorescent protein (GFP) cDNA is targeted to the TSH receptor (TSHR) gene, linking GFP expression to the transcription of the endogenous TSHR gene. The appearance of GFP-positive cells was dependent on the formation of embryoid bodies from undifferentiated ES cells and was greatly enhanced by TSH treatment during the first 2-4 d of differentiation. With the support of Matrigel, highly enriched ES cell-derived GFP-positive cells formed thyroid follicle-like clusters in a serum-free medium supplemented with TSH. Importantly, these clusters display the characteristics of thyroid follicular cells. Immunofluorescent studies confirmed the colocalization of TSHR with the Na+/I- symporter in the clusters and indicated that Na+/I- symporter was expressed exclusively in the plasma membrane. In addition, I- uptake activity was observed in these cells. Our results indicate that ES cells can be induced to differentiate into thyroid follicular cells, providing a powerful tool to study embryonic thyroid development and function.