We have recently identified a stromal cell-derived inducing activity (SDIA), which induces differentiation of neural cells from mouse embryonic stem (ES) cells. Particularly, midbrain TH+ dopaminergic neurons are generated efficiently in this system. These dopaminergic neurons are transplantable and survive well in the 6-OHDA-treated mouse striatum. SDIA induces co-cultured ES cells to differentiate into rostral central nervous system (CNS) tissues containing both ventral and dorsal cells. While early exposure of SDIA-treated ES cells to BMP4 suppresses neural differentiation and promotes epidermogenesis, late BMP4 exposure after the 4th day of co-culture causes differentiation of neural crest cells and dorsal-most CNS cells, with autonomic system and sensory lineages induced preferentially by high and low BMP4 concentrations, respectively. In contrast, Sonic Hedgehog (Shh) suppresses differentiation of neural crest lineages and promotes that of ventral CNS tissues such as motor neurons and HNF3beta+ floor plate cells with axonal guidance activities. Thus, SDIA-treated ES cells generate naïve precursors that have the competence of differentiating into the "full" dorsal-ventral range of neuroectodermal derivatives in response to patterning signals. I also discuss the role of SDIA and the mode of rostral-caudal specification of neuralized ES cells. In addition, I would like to discuss them in the light of control of in vitro neural production for the use in regenerative medicine for parkinsonism and retinal degeneration.