To examine the fundamental mechanisms governing neural differentiation, we analyzed the transcriptome changes that occur during the differentiation of hESCs into the neural lineage. Undifferentiated hESCs as well as cells at three stages of early neural differentiation-N1 (early initiation), N2 (neural progenitor), and N3 (early glial-like)-were analyzed using a combination of single read, paired-end read, and long read RNA sequencing. The results revealed enormous complexity in gene transcription and splicing dynamics during neural cell differentiation. We found previously unannotated transcripts and spliced isoforms specific for each stage of differentiation. Interestingly, splicing isoform diversity is highest in undifferentiated hESCs and decreases upon differentiation, a phenomenon we call isoform specialization. During neural differentiation, we observed differential expression of many types of genes, including those involved in key signaling pathways, and a large number of extracellular receptors exhibit stage-specific regulation. These results provide a valuable resource for studying neural differentiation and reveal insights into the mechanisms underlying in vitro neural differentiation of hESCs, such as neural fate specification, neural progenitor cell identity maintenance, and the transition from a predominantly neuronal state into one with increased gliogenic potential.