Parkinson's disease is characterized by a loss of midbrain dopamine (DA) neurons and is generally viewed as a potential target for stem cell therapy. Although several studies have reported the generation of postmitotic DA neurons from embryonic stem (ES) cells, it is unknown whether the proliferative progenitors of DA neurons can be isolated in vitro. To investigate this possibility, we have developed a combined approach in which ES cells are cocultured with PA6 stromal cells to expose them to stromal cell-derived inducing activity (SDIA) and are then cultured as neurospheres. Mouse ES cell colonies were detached from PA6 feeder cells after 8 days of SDIA treatment and then expanded as spheres for another 4 days in serum-free medium supplemented with fibroblast growth factor-2. The spheres exhibited neural stem cell characteristics and contained few DA neurons at this stage of culture. After being induced to differentiate on polyornithine/laminin-coated dishes for 7 days, these spheres generated DA neurons in vitro at a relatively low frequency. Intriguingly, addition of PA6 cell conditioned medium to the sphere culture medium significantly increased the percentage of DA neurons to 25–30% of the total number of neurons. Transplantation of conditioned medium-treated day 4 spheres, which contained DA neuron progenitors, into the mouse striatum resulted in the generation of a significant number of graft-derived DA neurons. These findings suggest that progenitors of DA neurons are generated and can proliferate in ES cell-derived neurospheres induced by serial SDIA and PA6 conditioned medium treatment. © 2006 Wiley-Liss, Inc.