Pluripotent mouse embryonic stem cells (ESCs) derived from the early blastocyst can differentiate in vitro into a variety of somatic cell types including lineages from all three embryonic germ layers. Protocols for ES cell neural differentiation typically involve induction by retinoic acid (RA), or by exposure to growth factors or medium conditioned by other cell types. A serum-free differentiation (SFD) medium completely lacking exogenous retinoids was devised that allows for efficient conversion of aggregated mouse ESCs into neural precursors and immature neurons. Neural cells produced in this medium express neuronal ion channels, establish polarity, and form functional excitatory and inhibitory synapses. Brief exposure to RA during the period of cell aggregation speeds neuronal maturation and suppresses cell proliferation. Differentiation without RA yields neurons and neural progenitors with apparent telencephalic identity, whereas cells differentiated with exposure to RA express markers of hindbrain and spinal cord. Transcriptional profiling indicates a substantial representation of transit amplifying neuroblasts in SFD cultures not exposed to RA.