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The ability to perform precise genetic engineering such as gene targeting in rabbits would benefit biomedical research by enabling, for example, the generation of genetically defined rabbit models of human diseases. This has so far not been possible because of the lack of functional rabbit embryonic stem cells and the high fetal and perinatal mortality associated with rabbit somatic cell nuclear transfer. We examined cultured pluripotent and multipotent cells for their ability to support the production of viable animals. Rabbit putative embryonic stem (ES) cells were derived and shown capable of in vitro and in vivo pluripotent differentiation. We report the first live born ES-derived rabbit chimera. Rabbit mesenchymal stem cells (MSCs) were derived from bone marrow, and multipotent differentiation was demonstrated in vitro. Nuclear transfer was carried out with both cell types, and embryo development was assessed in vitro and in vivo. Rabbit MSCs were markedly more successful than ES cells as nuclear donors. MSCs were transfected with fluorescent reporter gene constructs and assessed for nuclear transfer competence. Transfected MSCs supported development with similar efficiency as normal MSCs and resulted in the first live cloned rabbits from genetically manipulated MSCs. Reactivation of fluorescence reporter gene expression in reconstructed embryos was investigated as a means of identifying viable embryos in vitro but was not a reliable predictor. We also examined serial nuclear transfer as a means of rescuing dead animals.