Previous studies reported that embryonic stem cells (ESCs) can be induced to differentiate into cells showing a mature osteoblastic phenotype by culturing them under osteo-inductive conditions. It is probable that osteogenic differentiation requires that ESCs undergo differentiation through an intermediary step involving a mesenchymal lineage precursor. Based on our previous studies indicating that adult mesenchymal progenitor cells express α-smooth muscle actin (αSMA), we have generated ESCs from transgenic mice in which an αSMA promoter directs the expression of red fluorescent protein (RFP) to mesenchymal progenitor cells. To track the transition of ESC-derived MSCs into mature osteoblasts, we have utilized a bone-specific fragment of rat type I collagen promoter driving green fluorescent protein (Col2.3GFP). Following osteogenic induction in ESCs, we have observed expression of alkaline phosphatase (ALP) and subsequent mineralization as detected by von Kossa staining. After 1 week of osteogenic induction, ESCs begin to express αSMARFP. This expression was localized to the peripheral area encircling a typical ESC colony. Nevertheless, these αSMARFP positive cells did not show activation of the Col2.3GFP promoter, even after 7 weeks of osteogenic differentiation in vitro. In contrast, Col2.3GFP expression was detected in vivo, in mineralized areas following teratoma formation. Our results indicate that detection of ALP activity and mineralization of ESCs cultured under osteogenic conditions is not sufficient to demonstrate osteogenic maturation. Our study indicates the utility of the promoter-visual transgene approach to assess the commitment and differentiation of ESCs into the osteoblast lineage.