To induce differentiation of embryonic stem cells (ESCs) into specialized cell types for therapeutic purposes, it may be desirable to combine genetic manipulation and appropriate differentiation signals. We studied the induction of dopaminergic (DA) neurons from mouse ESCs by overexpressing the transcription factor Nurr1 and coculturing with PA6 stromal cells. Nurr1-expressing ESCs (N2 and N5) differentiated into a higher number of neurons (∼twofold) than the naïve ESCs (D3). In addition, N2/N5-derived cells contained a significantly higher proportion (>50%) of tyrosine hydroxylase (TH)+ neurons than D3 (<30%) and an even greater proportion of TH+ neurons (∼90%) when treated with the signaling molecules sonic hedgehog, fibroblast growth factor 8, and ascorbic acid. N2/N5-derived cells express much higher levels of DA markers (e.g., TH, dopamine transporter, aromatic amino acid decarboxylase, and G protein–regulated inwardly rectifying K+ channel 2) and produce and release a higher level of dopamine, compared with D3-derived cells. Furthermore, the majority of generated neurons exhibited electrophysiological properties characteristic of midbrain DA neurons. Finally, transplantation experiments showed efficient in vivo integration/generation of TH+ neurons after implantation into mouse striatum. Taken together, our results show that the combination of genetic manipulation(s) and in vitro cell differentiation conditions offers a reliable and effective induction of DA neurons from ESCs and may pave the way for future cell transplantation therapy in Parkinson's disease.