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Although embryonic stem (ES) cells are capable of forming any cell type in the body, the mechanisms that control cell type-specific differentiation are largely unknown. In the present study, we examined the process of differentiation to motor neurons and oligodendrocytes from mouse (Olig2GFP) ES cells. Mouse ES cells undergo a sequential process of differentiation over a 3-week period to generate motor neurons and oligodendrocytes. At day 7 of differentiation, Olig2-expressing cells are biased to a neuronal lineage. However, further differentiation (day 32) resulted in the majority of Olig2-expressing cells exhibiting an oligodendrocyte phenotype as well as a reduced ability to make motor neurons. Exposure of human ES cells to Sonic hedgehog (Shh) likewise resulted in enhanced motor neuron differentiation. Our results establish the requirements for directing ES cells to become motor neurons and oligodendrocytes and show that ES cell-derived Olig2 cells can give rise to both motor neurons and oligodendrocytes, depending on the time at which differentiation is initiated. [ABSTRACT FROM AUTHOR]