To direct human embryonic stem (HES) cells to a dopaminergic neuronal fate, we cocultured HES cells that were exposed to both sonic hedgehog and fibroblast growth factor 8 with telomerase-immortalized human fetal midbrain astrocytes. These astrocytes substantially potentiated dopaminergic neurogenesis by both WA09 and WA01 HES cells, biasing them to the A9 nigrostriatal phenotype. When transplanted into the neostriata of 6-hydroxydopamine-lesioned parkinsonian rats, the dopaminergic implants yielded a significant, substantial and long-lasting restitution of motor function. However, although rich in donor-derived tyrosine hydroxylase-expressing neurons, the grafts exhibited expanding cores of undifferentiated mitotic neuroepithelial cells, which can be tumorigenic. These results show the utility of recreating the cellular environment of the developing human midbrain while driving dopaminergic neurogenesis from HES cells, and they demonstrate the potential of the resultant cells to mediate substantial functional recovery in a model of Parkinson disease. Yet these data also mandate caution in the clinical application of HES cell-derived grafts, given their potential for phenotypic instability and undifferentiated expansion.