We report directed differentiaion of retinal precursors in vitro from mouse ES cells. Six3⁺ rostral brain progenitors are generated by culturing ES cells under serum-free suspension conditions (SFEB culture) in the presence of Wnt and Nodal antagonists (Dkk1 and LeftyA), and subsequently steered to differentiate into Rx⁺ cells (16%) by treatment with activin and serum. Consistent with the characteristics of early neural retinal precursors, the induced Rx⁺ cells coexpress Pax6 and the mitotic marker Ki67, but not Nestin. The ES cell-derived precursors efficiently generate cells with the photoreceptor phenotype (rhodopsin⁺, recoverin⁺) when cocultured with embryonic retinal cells. Furthermore, organotypic culture studies demonstrate the selective integration and survival of ES cell-derived cells with the photoreceptor phenotype (marker expression and morphology) in the outer nuclear layer of the retina. Taken together, ES cells treated with SFEB/Dkk1/LeftyA/serum/activin generate neural retinal precursors, which have the competence of photoreceptor differentiation.