Random integration is one of the more straightforward methods to introduce a transgene into human embryonic stem (ES) cells. However, random integration may result in transgene silencing and altered cell phenotype due to insertional mutagenesis in undefined gene regions. Moreover, reliability of data may be compromised by differences in transgene integration sites when comparing multiple transgenic cell lines. To address these issues, we developed a genetic manipulation strategy based on homologous recombination and Cre recombinase-mediated site-specific integration. First, we performed gene targeting of the hypoxanthine phosphoribosyltransferase 1 (HPRT) locus of the human ES cell line KhES-1. Next, a gene-replacement system was created so that a circular vector specifically integrates into the targeted HPRT locus via Cre recombinase activity. We demonstrate the application of this strategy through the creation of a tetracycline-inducible reporter system at the HPRT locus. We show that reporter gene expression was responsive to doxycycline and that the resulting transgenic human ES cells retain their self-renewal capacity and pluripotency.