It has been suggested that the isolation of scalable populations of limbal stem cells may lead to radical changes in ocular therapy. In particular, the derivation and transplantation of corneal stem cells from these populations may result in therapies providing clinical normality of the diseased or damaged cornea. Although feasible in theory, the lack of donor material in sufficient quantity and quality currently limits such a strategy. A potential scalable source of corneal cells could be derived from pluripotent stem cells (PSCs). We developed an in vitro and serum-free corneal differentiation model which displays significant promise. Our stepwise differentiation model was designed with reference to development and gave rise to cells which displayed similarities to epithelial progenitor cells which can be specified to cells displaying a corneal epithelial phenotype. We believe our approach is novel, provides a robust model of human development and in the future, may facilitate the generation of corneal epithelial cells that are suitable for clinical use. Additionally, we demonstrate that following continued cell culture, stem cell-derived corneal epithelial cells undergo transdifferentiation and exhibit squamous metaplasia and therefore, also offer an in vitro model of disease.