The formation and differentiation of multipotent precursors underlies the generation of cell diversity during mammalian development. Recognition and analysis of these transient cell populations has been hampered by technical difficulties in accessing them in vivo. In vitro model systems, based on the differentiation of embryonic stem (ES) cells, provide an alternative means of identifying and characterizing these populations. Using a previously established mouse ES-cell-based system that recapitulates the development of the ectoderm lineage we have identified a transient population that is consistent with definitive ectoderm. This previously unidentified progenitor occurs as a temporally discrete population during ES cell differentiation, and differs from the preceding and succeeding populations in gene expression and differentiation potential, with the unique ability to form surface ectoderm in response to BMP4 signalling.