The neuronal circuits of the cerebellar cortex are essential for motor and sensory learning, associative memory formation, and the vestibular ocular reflex. In children and young adults, tumors of the granule cell, the medulloblastomas, represent 40% of brain tumors. We report the differentiation of E14 ES cells into mature granule neurons by sequential treatment with secreted factors (WNT1, FGF8, and RA) that initiate patterning in the cerebellar region of the neural tube, bone morphogenic proteins (BMP6/7 and GDF7) that induce early granule cell progenitor markers (MATH1, MEIS1, ZIC1), mitogens (SHH, JAG1) that control proliferation and induce additional granule cell markers (Cyclin D2, PAX2/6), and culture in glial-conditioned medium to induce markers of mature granule neurons (GABAalpha(6)r), including ZIC2, a unique marker for granule neurons. Differentiated ES cells formed classic "T-shaped" granule cell axons in vitro, and implantation of differentiated Pde1c-Egfp-BAC transgenic ES cells into the external granule cell layer of neonatal mice resulted in the extension of parallel fibers, migration across the molecular layer, incorporation into the internal granule cell layer, and extension of short dendrites, typical of young granule cells forming synaptic connections with afferent mossy fibers. These results underscore the utility of treating ES cells with local, inductive signals that regulate CNS neuronal development in vivo as a strategy for cell replacement therapy of defined neuronal populations.