Embryonic stem (ES) cells provide a unique tool for introducing random or targeted genetic alterations, because it is possible that the desired, but extremely rare recombinant genotypes can be screened by drug selection. ES cell-mediated transgenesis has so far been limited to the mouse. In the fish medaka (Oryzias latipes) several ES cell lines have been made available. Here we report the optimized conditions for gene transfer and drug selection in the medaka ES cell line MES1 as a prelude for gene targeting in fish. MES1 cells gave rise to a moderate to high transfection efficiency by the calcium phosphate co-precipitation (5%), commercial reagents Fugene (11%), GeneJuice (21%) and electroporation (>30%). Transient gene transfer and CAT reporter assay revealed that several enhancers/promoters and their combinations including CMV, RSV and ST (the SV40 virus early gene enhancer linked to the thymidine kinase promoter) were suitable regulatory sequences to drive transgene expression in the MES1 cells. We show that neo, hyg or pac conferred resistance to G418, hygromycin or puromycin for positive selection, while the HSV-tk generated sensitivity to ganciclovir for negative selection. The positive-negative selection procedure that is widely used for gene targeting in mouse ES cells was found to be effective also in MES1 cells. Importantly, we demonstrate that MES1 cells after gene transfer and long-term drug selection retained the developmental pluripotency, as they were able to undergo induced differentiation in vitro and to contribute to various tissues and organs during chimeric embryogenesis.