Under appropriate conditions in culture, embryonic stem cells will differentiate and form embryoid bodies that have been shown to contain cells of the hematopoietic, endothelial, muscle and neuronal lineages. Many aspects of the lineage-specific differentiation programs observed within the embryoid bodies reflect those found in the embryo, indicating that this model system provides access to early cell populations that develop in a normal fashion. Recent studies involving the differentiation of genetically altered embryonic stem cells highlight the potential of this in vitro differentiation system for defining the function of genes in early development.