With the goal of generating retinal cells from mouse embryonic stem (ES) cells by exogenous gene transfer, we introduced the Rx/rax transcription factor, which is expressed in immature retinal cells, into feeder-free mouse ES cells (CCE). CCE cells expressing Rx/rax as well as enhanced green fluorescent protein (CCE-RX/E cells) proliferated and remained in the undifferentiated state in the presence of leukemia inhibitory factor, as did parental ES cells. We made use of mouse embryo retinal explant cultures to address the differentiation ability of grafted ES cells. Dissociated embryoid bodies were treated with retinoic acid for use as donor cells and cocultured with retina explants for 2 weeks. In contrast to the parental CCE cells, which could not migrate into host retinal cultures, CCE-RX/E cells migrated into the host retina and extended their process-like structures between the host retinal cells. Most of the grafted CCE-RX/E cells became located in the ganglion cell and inner plexiform layers and expressed ganglion and horizontal cell markers. Furthermore, these grafted cells had the electrophysiological properties expected of ganglion cells. Our data thus suggest that subpopulations of retinal neurons can be generated in retinal explant cultures from grafted mouse ES cells ectopically expressing the transcription factor Rx/rax.