With their capability to undergo unlimited self-renewal and to differentiate into all cell types in the body, human embryonic stem cells (hESCs) hold great promise in human cell therapy. However, there are limited tools for easily identifying and isolating live hESC-derived cells. To track hESC-derived neural progenitor cells (NPCs), we applied homologous recombination to knock-in the mCherry gene into the Nestin locus of hESCs. This facilitated the genetic labeling of Nestin positive neural progenitor cells with mCherry. Our reporter system enables the visualization of neural induction from hESCs both in vitro (embryoid bodies) and in vivo (teratomas). This system also permits the identification of different neural subpopulations based on the intensity of our fluorescent reporter. In this context, a high level of mCherry expression showed enrichment for neural progenitors, while lower mCherry corresponded with more committed neural states. Combination of mCherry high expression with cell surface antigen staining enabled further enrichment of hESC-derived NPCs. These mCherry(+) NPCs could be expanded in culture and their differentiation resulted in a down-regulation of mCherry consistent with the loss of Nestin expression. Therefore, we have developed a fluorescent reporter system that can be used to trace neural differentiation events of hESCs.