To model the differentiation of thyroid epithelial cells, we examined embryoid bodies derived from undifferentiated murine embryonic stem cells treated with activin A to induce endoderm differentiation, the germ layer from which thyroid cells occur. The resulting endodermal cells were then further exposed to TSH and/or IGF-I for up to 21 d. Oct-4 and REX1 expression, required to sustain stem cell self-renewal and pluripotency, were appropriately down-regulated, whereas GATA-4, and alpha-fetoprotein, both endodermal-specific markers, increased as the embryonic stem cells were exposed to activin A. By d 5 culture, TSH receptor (TSHR) and sodium iodide symporter (NIS) gene and protein expression were markedly induced. Cells isolated by the fluorescence-activated cell sorter simultaneously expressed not only TSHR and NIS proteins but also PAX8 mRNA, an expression pattern unique to thyroid cells and expected in committed thyroid progenitor cells. Such expression continued until d 21 with no influence seen by the addition of TSH or IGF-I. The sequence of gene expression changes observed in these experiments demonstrated the emergence of definitive thyroid endoderm. The activin A induction of thyroid-specific markers, NIS and TSHR, occurred in the absence of TSH stimulation, and, therefore, the emergence of thyroid endoderm in vitro paralleled the emergence of thyroid cells in TSHR-knockout mice. Activin A is clearly a major regulator of thyroid endoderm.