Embryonic stem cells (ESCs) are a potential source of neural derivatives that can be used in stem cell-based therapies designed to treat neurological disorders. The derivation of specific neuronal or glial cell types from ESCs invariably includes the production of neural stem cells (NSCs). We describe the basic mechanisms of neural induction during vertebrate embryogenesis and how this information helped formulate several protocols used to generate NSCs from ESCs. We highlight the advantages and disadvantages of each approach and review what has been learned about the intermediate stages in the transition from ESC to NSC. Recent data describing how specific growth factors and signaling molecules regulate production of NSCs are described and a model synthesizing this information is presented. Developmental Dynamics 236:3255–3266, 2007. © 2007 Wiley-Liss, Inc.