To examine the role of secreted signaling molecules and neurogenic genes in early development, we have developed a culture system for the controlled differentiation of mouse embryonic stem (ES) cells. In the current investigation, two of the earliest identified BMP antagonists/neural-inducing factors, noggin and chordin, were expressed in pluripotent mouse ES cells. Neurons were present as early as 24 h following transfection of ES cells with a pCS2/noggin expression plasmid, with differentiation peaking at 72 h. With neuronal differentiation, stem cell marker genes were down-regulated and neural determination genes expressed. Coculture experiments and exposure to noggin-conditioned medium produced similar neuronal differentiation of control ES cells, while addition of BMP-4 to noggin expressants strikingly inhibited neuronal differentiation. Transfection of ES cells with a pCS2/chordin expression vector or exposure to chordin-conditioned medium produced a more complex pattern of differentiation; ES cells formed neurons, mesenchymal cells as well as N-CAM-positive, nestin-positive neuroepithelial progenitors. These data suggest that, consistent with their different expression fields, noggin and chordin may play distinct roles in patterning the early mouse embryo.