We demonstrate directed differentiation of telencephalic precursors from mouse embryonic stem (ES) cells using optimized serum-free suspension culture (SFEB culture). Treatment with Wnt and Nodal antagonists (Dkk1 and LeftyA) during the first 5 d of SFEB culture causes nearly selective neural differentiation in ES cells ( approximately 90%). In the presence of Dkk1, with or without LeftyA, SFEB induces efficient generation ( approximately 35%) of cells expressing telencephalic marker Bf1. Wnt3a treatment during the late culture period increases the pallial telencephalic population (Pax6(+) cells yield up to 75% of Bf1(+) cells), whereas Shh promotes basal telencephalic differentiation (into Nkx2.1(+) and/or Islet1/2(+) cells) at the cost of pallial telencephalic differentiation. Thus, in the absence of caudalizing signals, floating aggregates of ES cells generate naive telencephalic precursors that acquire subregional identities by responding to extracellular patterning signals.