Neural cells are found rarely during differentiation of embryonic stem (ES) cells in vitro. To increase the yield of neuronal and glial cells from ES cells, we designed a differentiation procedure in which embryoid bodies were grown in medium containing retinoic acid (RA) and a low level (1%) of fetal calf serum. Using this procedure we were able to obtain neurofilament or glial fibrillary acidic protein-positive cells in 90% of outgrowths of embryonic bodies. Differentiation was dependent on the RA concentration, whereas depletion of RA favored the appearance of cardiac muscle cells. Differentiation of ES cells correlated with increased activity of Pax6, a transcription factor involved in central nervous system development. Pax6 was not expressed in undifferentiated ES cells, nor after differentiation by depletion of leukemia inhibitory factor or by overgrowth. After embryoid body formation and subsequent attachment, only infrequently did a few cells express Pax6. Addition of RA resulted in the appearance of Pax6-expressing cells in a concentration-dependent manner, with a peak at 100 nM RA. The presented differentiation procedure can be used for studying the molecular biology of neurogenesis in vitro.