Neural stem and progenitor cells isolated from embryonic day 13 rat cerebral cortex were immobilized in three-dimensional type I collagen gels, and then the cell-collagen constructs were transferred to rotary wall vessel bioreactors and cultured in serum-free medium containing basic fibroblast growth factor (bFGF) combined with brain-derived neurotrophic factor for up to 10 weeks. Remarkably, the collagen-entrapped cells formed a complex two-layered structure that emulated to a certain extent the cerebral cortex of the embryonic brain in architecture and functionality. The surface layer (layer I) composed primarily of proliferating neural progenitor cells (nestin(+), vimentin(+), and PCNA(+)) predominantly expressed functional neurotransmitter receptors for cholinergic and purinergic agonists while differentiating cells (TuJ1(+) and GFAP(+)) in the deeper layer (layer II) contained differentiated neurons and astrocytes and mainly responded to GABAergic and glutamatergic agonists and to veratridine, which activates voltage-dependent Na(+) channels. An active synaptic vesicle recycling was demonstrated by neuronal networks in the deeper layer using the endocytotic marker FM1-43. Cell polarization forming the characteristic two-layered structure was found to associate with the bFGF and FGF receptor signaling. These engineered functional tissue constructs have a potential use as tissue surrogates for drug screening and detection of environmental toxins, and in neural cell replacement therapy.