In this review we examine the potential of embryonic stem cells (ESCs) for use in the treatment of retinal diseases involving photoreceptors and retinal pigment epithelium (RPE). We outline the ontogenesis of target retinal cell types (RPE, rods and cones) and discuss how an understanding of developmental processes can inform our manipulation of ESCs in vitro. Due to their potential for cellular therapy, special emphasis is placed upon the derivation and culture of human embryonic stem cells (HESCs) and their differentiation towards a retinal phenotype. In terms of achieving this goal, we suggest that much of the success to date reflects permissive in vitro environments provided by established protocols for HESC derivation, propagation and neural differentiation. In addition, we summarise key factors that may be important for enhancing efficiency of retinal cell-type derivation from HESCs. The retina is an amenable component of the central nervous system (CNS) and as such, diseases of this structure provide a realistic target for the application of HESC-derived cellular therapy to the CNS. In order to further this goal, the second component of our review focuses on the cellular and molecular cues within retinal environments that may influence the survival and behaviour of transplanted cells. Our analysis considers both the potential barriers to transplant integration in the retina itself together with the remodelling in host visual centres that is known to accompany retinal dystrophy.