Corneal transparency depends on a unique extracellular matrix secreted by stromal keratocytes, mesenchymal cells of neural crest lineage. Derivation of keratocytes from human embryonic stem (hES) cells could elucidate the keratocyte developmental pathway and open a potential for cell-based therapy for corneal blindness. This study seeks to identify conditions inducing differentiation of pluripotent hES cells to the keratocyte lineage. Neural differentiation of hES cell line WA01(H1) was induced by co-culture with mouse PA6 fibroblasts. After 6 days of co-culture, hES cells expressing cell-surface NGFR protein (CD271, p75NTR) were isolated by immunoaffinity adsorption, and cultured as a monolayer for one week. Keratocyte phenotype was induced by substratum-independent pellet culture in serum-free medium containing ascorbate. Gene expression, examined by quantitative RT-PCR, found hES cells co-cultured with PA6 cells for 6 days to upregulate expression of neural crest genes including NGFR, SNAI1, NTRK3, SOX9, and MSX1. Isolated NGFR-expressing cells were free of PA6 feeder cells. After expansion as a monolayer, mRNAs typifying adult stromal stem cells were detected, including BMI1, KIT, NES, NOTCH1, and SIX2. When these cells were cultured as substratum-free pellets keratocyte markers AQP1, B3GNT7, PTDGS, and ALDH3A1 were upregulated. mRNA for keratocan (KERA), a cornea-specific proteoglycan, was upregulated more than 10,000 fold. Culture medium from pellets contained high molecular weight keratocan modified with keratan sulfate, a unique molecular component of corneal stroma. These results show hES cells can be induced to differentiate into keratocytes in vitro. Pluripotent stem cells, therefore, may provide a renewable source of material for development of treatment of corneal stromal opacities.