Embryonic stem cells are uniquely endowed with the capacity of self-renewal and the potential to give rise to all possible cell types, including germ cells. These qualities have made mouse embryonic stem cells a valuable resource for genetic manipulation of the mouse genome. In addition, they present a powerful system for the in vitro dissection of mammalian embryonic development. The recent isolation of human embryonic stem cells has raised a lot of interest for the potential of transposing our knowledge of lineage-specific differentiation of embryonic stem cells to cell-based therapy of human disease. Recent reports have provided insights into the specific differentiation of embryonic stem cells to different cell types of the embryo. However, progress in this direction seems to depend on the knowledge of the mechanisms controlling lineage decisions during embryogenesis.