Embryonic stem cells (ESCs) are a promising cell source for regenerative medicine and transplantation therapy.ESCs are able to self-renew indefinitely in culture; however, the ability to differentiate ESCs into specific cell lineages is key to exploiting their therapeutic potential. Cell-based phenotypic and reporter-based screens have been used to identify small molecules that selectively promote ESC differentiation into a variety of cell lineages. Not only will such molecules facilitate the clinical applications of stem cells, the detailed study of their mechanism is providing new insights into the biology that regulates ESC self-renewal and differentiation. In this article we discuss key issues, challenges and opportunities in the application of this chemical approach to stem cell biology.