Pluripotent human teratocarcinoma stem cells cultured in vitro provide a resource for the study of early embryonic development in man, as well as a means for discovery of novel factors controlling cell differentiation and commitment. We previously reported that the human teratocarcinoma stem cell line GCT 27X-1 could be induced to differentiate into an endodermal progenitor cell by treatment with high doses of retinoic acid. A search for polypeptide inducers of differentiation in this system has identified bone morphogenetic protein-2 (BMP-2) as a potent inducer of differentiation. In cell line GCT 27X-1, treatment with BMP-2 reduces proliferation, induces morphological changes similar to obtained following treatment with retinoic acid, and causes a decrease in the expression of transcripts for the stem cell markers CD30 and Oct-4. Preliminary immunochemical studies indicate that the differentiated cells produced by BMP-2 are endodermal precursors with a pattern of marker expression similar to that found in retinoic acid treated cells. Models of endoderm differentiation in humans will be useful for identifying the molecules which mediate cell interactions in development, and in achieving directed differentiation of cells for use in transplantation.