A key limitation in transplanting human embryonic stem cell (hESC)-derived cells remains their potential to elicit a host immune response with subsequent graft rejection due to immune mismatch between host and donor cells. In order to realize the enormous clinical promise of hESCs, novel cell lines capable of evading immune rejection by immunocompetent hosts are desperately needed. Our team has been focused on addressing this critical unmet need, and has had preliminary success in developing and validating an immune override mechanism for human adult stem cells and somatic cells. In the second year of this 3-year project, our main objective was to assess the efficacy of our novel non-viral-based gene delivery construct containing an engineered tolerogenic molecule that confers immune protection to cells expressing it on their extracellular membranes. Herein, we report that expression of our tolerogenic molecule was stable through upto 40 passages in human embryonic stem cells and that hESCs retained an immunoprivileged phenotype in vitro as evidenced by their ability to avoid natural killer cytotoxicity and reduce T cell alloproliferation. Furthermore, expression of the construct was stable during differentiation of hESCs into epidermal progenitor cells. These cells also showed an impressive dampending of natural killer cytotoxicity and T cell alloproliferation. This confirms that our approach is robust in vitro during pluripotent division and during differentiation, both of which are required for creation of a clinical product. We believe that the progress achieved in the second budget period provides the basis for creating a platform immune tolerant hESC technology that can be employed for the future development of regenerative medicine and curative therapies.