Human embryonic stem cells (hESC) hold tremendous potential in the future of tissue engineering, offering promise as a source of virtually unlimited quantities of desired cell and tissue types. We have identified soluble chemical and extracellular matrix factors that permit isolation of keratinocyte precursors from hESCs. Culturing embryoid bodies (EB) formed from hESCs in a defined serum-free keratinocyte growth medium on a gelatin matrix generated keratin 14 (K14) expressing cells with an epithelial morphology. These K14 expressing cells could be subcultured in medium supplemented with hydrocortisone and induced to stratify and terminally differentiate by addition of calcium. Optimum times for obtaining K14 expressing cells were found for EB formation and for differentiation and growth of cultures after EB plating. EB formation was not necessary to generate keratinocyte precursors; direct transfer of hESC colonies to keratinocyte growth medium permitted differentiation into the keratinocyte lineage. With further studies to optimize generation and purification of hESC-derived keratinocyte precursors, these cells could provide a source of epidermal cells for skin tissue engineering applications in vitro or in vivo.