The aim of our study is to explore the possibility of using an ancient method of culture technique- the hanging drop technique for stem cell differentiation and cytotoxicity testing. We demonstrate here a variety of novel applications of this age old technique not only to harness the differentiation potential of stem cells into specific lineages but also for cytotoxicity studies. Here we have prepared hanging drop cultures by placing 20 microl micro-drops of nutrient media and 10% Fetal Calf Serum (FCS) containing cells of interest on the lids of 60 mm dishes. Bottom plates of the dishes were filled with sterile Phosphate Buffer Saline (PBS) to avoid desiccation of samples. Lids were then placed on the bottom plates to achieve hanging drop cultures. We utilized this technique for cultivation of ciliated epithelia to study cytotoxicity and differentiation of bone marrow stromal cells. Most importantly the modified culture technique presented here is simple, economical and cost effective in terms of the time taken and the reagents required and are amenable to goal specific modification such as cytotoxicity testing. It is advantageous over the existing system in terms of retention of viability and functionality for longer duration and for providing three dimensional growth micro-environment making it useful for organotypic cultures and in vivo simulation.