Embryonic stem (ES) cells are pluripotent cells derived from the inner cell mass of blastocyst-stage embryos. They can maintain an undifferentiated state indefinitely and can differentiate into derivatives of all three germ layers, namely ectoderm, endoderm and mesoderm. Although much progress has been made in the propagation and differentiation of ES cells, induction of photoreceptors has generally required coculture with or transplantation into developing retinal tissue. Here, we describe a protocol for generating retinal cells from ES cells by stepwise treatment with defined factors. This method preferentially induces photoreceptor and retinal pigment epithelium (RPE) cells from mouse and human ES cells. In our protocol, differentiation of RPE and photoreceptors from mouse ES cells requires 28 d and the differentiation of human ES cells into mature RPE and photoreceptors requires 120 and 150 d, respectively. This differentiation system and the resulting pluripotent stem cell-derived retinal cells will facilitate the development of transplantation therapies for retinal diseases, drug testing and in vitro disease modeling. It will also improve our understanding of the development of the central nervous system, especially the eye.