This protocol has been designed to generate neural precursor cells (NPCs) from human embryonic stem cells (hESCs) using a physiological oxygen (O(2)) level of 3% (previously termed hypoxia) and chemically defined conditions. The first stage involves suspension culture of hESC colonies at 3% O(2), where they acquire a neuroepithelial identity over a period of 2 weeks. This timescale is comparable to that observed at 20% O(2), but survival is enhanced. Sequential application of retinoic acid and purmorphamine (PM), from day 14 to day 28, directs differentiation toward spinal motor neurons. Alternatively, addition of fibroblast growth factor-8 and PM generates midbrain dopaminergic neurons. OLIG2 (encoding oligodendrocyte lineage transcription factor 2) induction in motor neuron precursors is twofold greater than that at 20% O(2), whereas EN1 (encoding engrailed homeobox 1) expression is enhanced fivefold. NPCs (at 3% O(2)) can be differentiated into all three neural lineages, and such cultures can be maintained long term in the absence of neurotrophins. The ability to generate defined cell types at 3% O(2) should represent a significant advancement for in vitro disease modeling and potentially for cell-based therapies.