A number of different cell lines that exhibit a partial neuronal phenotype have been identified, but in many cases the full extent of their neuronal differentiation has not been directly addressed by functional studies. We have used electrophysiology and immunofluorescence to examine the formation of synapses and the development of neuronal polarity by murine embryonic stem (ES) cells and the mouse P19 embryonic carcinoma cell line. Within 2–3 weeks after induction by retinoic acid, subsets of P19 and ES cells formed excitatory synapses, mediated by glutamate receptors, or inhibitory synapses, mediated by receptors for GABA or glycine. In ES-cell cultures, both NMDA and non-NMDA receptors contributed to the excitatory postsynaptic response. Staining with antibodies to growth- associated protein-43 and microtubule-associated protein-2 revealed segregation of immunoreactivity into separate axonal and somato- dendritic compartments, respectively. Consistent with our physiological evidence for synapse formation, intense punctate staining was observed with antibodies to the synaptic vesicle proteins synapsin, SV2, and synaptophysin. These results demonstrate the in vitro acquisition by pluri-potent cell lines of neuronal polarity and functional synaptic transmission that is characteristic of CNS neurons.