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A single embryonic stem cell (ESC) line can be repetitively cryopreserved, thawed, expanded, and differentiated into various cellular components serving as a potentially renewable and well-characterized stem cell source. Therefore, we determined whether ESCs could be used to reconstitute marrow and blood in major histocompatibility complex (MHC)-mismatched mice. To induce differentiation toward hematopoietic stem cells (HSCs) in vitro, ESCs were cultured in methylcellulose with stem cell factor, interleukin (IL)-3, and IL-6. ESC-derived, cytokine-induced HSCs (c-kit+/CD45+) were isolated by flow cytometry and injected either intra bone marrow or intravenously into lethally irradiated MHC-mismatched recipient mice. From 2 wk to 6 mo after injection, the peripheral blood demonstrated increasing ESC-derived mononuclear cells that included donor-derived T and B lymphocytes, monocytes, and granulocytes without clinical or histologic evidence of graft-versus-host disease (GVHD). Mixed lymphocyte culture assays demonstrated T cell tolerance to both recipient and donor but intact third party proliferative responses and interferon γ production. ESCs might be used as a renewable alternate marrow donor source that reconstitutes hematopoiesis with intact immune responsiveness without GVHD despite crossing MHC barriers.