Application of embryonic and adult stem cells in regenerative medicine will require efficient protocols for directing stem cell differentiation into well-defined lineages. Differentiation induced by exogenous cytokines, growth factors, or extracellular matrix components will require extended in vitro culture that would delay autologous transplantation and may well alter the immunogenicity of cultured cells. Genetic modulation to direct stem cell differentiation may obviate prolonged culture, but safety concerns preclude clinical application of genetically altered cells in the foreseeable future A novel alternative would be to incorporate protein transduction domains (PTDs) into recombinant transcription factors that play important roles in somatic differentiation. Such protein-engineered transcription factors would then have the ability to translocate across the cell membrane and be internalized within the cytosol, where they would act as paracrine signaling molecules. Upon internalization, the recombinant transcription factors would only have a limited active half-life, so that their effects may only be transient. However, this could provide sufficient stimulus for initiating stem cell differentiation into a required lineage.