Human embryonic stem (ES) cells serve as a potentially unlimited renewable source for cell transplantation targeted to treat several diseases. One advantage of embryonic stem (ES) cells over other stem cells under research is their apparently indefinite self-renewal capacity if cultured appropriately, and their ready differentiation into various cell phenotypes of all three germ layers. To date, a number of studies have reported the derivation of specific functional derivatives from human ES cells in vitro. While there have been clinical trials of human embryonal carcinoma (EC) cell-derived neurons in humans there has been no attempt as yet using human ES cell derivatives. However, the latter have been transplanted into recipient animals. In some cases ES-derived cells were shown to undergo further maturation, displayed integration with host tissue and even ameliorated the disease condition in the animal model. Recently, it has been reported that human ES cells can be genetically manipulated. Such procedures could be used to direct differentiation to a specific cell type or to reduce graft rejections by the modification of immune responses. This review highlights some of the recent advances in the field and the challenges that lie ahead before clinical trials using ES-derived cells can be contemplated.