Embryonic stem (ES) cells can be differentiated into many cell types in vitro, thus providing a potential unlimited supply of cells for cognitive in vitro studies and cell-based therapy. We recently reported the efficient derivation of ectodermal and epidermal cells from murine ES cells. These differentiated ES cells were able to form, in culture, a multilayered epidermis coupled with an underlying dermal compartment, similar to native skin. We clarified the function of BMP-4 in the binary neuroectodermal choice by stimulating sox-1(+) neural precursors to undergo specific apoptosis while inducing epidermal differentiation through DeltaNp63 gene activation. We further demonstrated that DeltaNp63 enhances ES-derived ectodermal cell proliferation and is necessary for epidermal commitment. This unique cellular model further provides a powerful tool for identifying the molecular mechanisms controlling normal skin development and for investigating p63-ectodermal dysplasia human congenital pathologies.