Specific neuronal differentiation of Embryonic Stem Cells (ESCs) depends on their capacity to interpret environmental cues. At present, it is not clear at which stage of differentiation ESCs become competent to produce multiple neuronal lineages in response to the niche of the embryonic brain. To unfold the developmental potential of ESC-derived precursors, we transplanted these cells into the embryonic midbrain explants, where neurogenesis occurs as in normal midbrain development. Using this experimental design, we show that the transition from ESCs to Embryoid Body (EB) precursors is necessary to differentiate into Lmx1a(+)/Ptx3(+)/TH(+) dopaminergic neurons around the ventral midline of the midbrain. In addition, EB cells placed at other dorsal-ventral levels of the midbrain give rise to Nkx6.1(+) red nucleus (RN) neurons, Nkx2.2(+) ventral interneurons and Pax7(+) dorsal neurons at the correct positions. Notably, differentiation of ESCs into Neural Precursor Cells (NPCs) prior to transplantation markedly reduces specification at the Lmx1a, Nkx6.1 and Pax7 expression domains, without affecting neuronal differentiation. Finally, exposure to Fgf8 and Shh in vitro promotes commitment of some ESC-derived NPCs to differentiate into putative Lmx1a(+) dopaminergic neurons in the midbrain. Our data demonstrate intrinsic developmental potential differences among ESC-derived precursor populations.