Epidermal growth factor (EGF)-responsive stem cells have been identified in the murine central nervous system. These cells can be isolated from the brain and maintained in an undifferentiated state in vitro in the presence of EGF. After removing EGF, the cells cease mitosis and can be induced to differentiate into neurons, astrocytes, and oligodendrocytes. We demonstrate that when the undifferentiated stem cells (nestin-positive) are injected into the myelin-deficient rat spinal cord, they respond to cues within the mutant CNS and differentiate into myelinating oligodendrocytes, in contrast to their behavior in vitro, where they mainly form astrocytes. The cells provide a valuable model system for the study of the development of early oligodendrocytes from multipotent neural stem cells. Because these cells are influenced to divide using growth factors, rather than oncogenes, and because they appear to make appropriate lineage decisions when transplanted into a mutant environment, they may provide an excellent source of cells for a variety of future therapies using cellular transplantation.