Human embryonic stem cells (hESCs) can undergo unlimited self-renewal and retain the ability to differentiate into all cell types in the body. Therefore, as a renewable source of numerous cell types, stem cells hold great promise for human cell replacement therapy. Significant progress has been made in establishing the conditions to differentiate hESCs into several lineages of biologically active cells. For example, recent studies in animal models have shown that myocytes differentiated from hESCs improve cardiac function after myocardial infarction, and oligodendroglial progenitors could rescue spinal cord injury. hESC-derived lung epithelium has been shown to repair and improve the lung function after acute lung injury1. In addition, pancreatic β cells derived from hESCs are functional in animal models. These recent encouraging reports suggest that hESC-based cell replacement therapies can be achieved in the near future.Despite the promising progress in generating hESC-derived tissues, several major obstacles must be addressed prior to successful application of hESC-based cell replacement therapies in patients. One major complication is the immune-mediated rejection of hESC-derived cells by the recipient due to expression of allo-antigens and specific alterations in gene expression. We are working to “turn off” the cells of the immune system responsible for graft rejection but only in the response to grafted tissues derived from stem cells. This strategy is a significant improvement over total immune suppression which is typically used to promote graft acceptance. This year we have made significant progress in that we have generated stem cells that are accepted as grafts and begun to dissect the molecular pathways responsible for graft acceptance.