Neural cells derived from ES cells in cell culture (ESNCs) have many of the properties of normal neural cells and provide a model of "neurogenesis-in-a-dish." Here we show that ESNCs provide a powerful system for analyzing neural gene transcription. ES cells are transfected with bacterial artificial chromosomes (BACs) containing Olig2, a gene with a key role in neural fate choice. One BAC is modified by recombineering to insert a reporter gene and a gene for selecting stably transfected clones. Another BAC contains a deletion of a suspected Olig2 promoter. Stable transgenic clones of ES cells are isolated, differentiated in culture, and the expression of transgenes is assayed. Differentiated cells dramatically up-regulate transgene expression and a deletion analysis reveals a basal promoter for Olig2. The combination of ESNCs and BAC recombineering will have broad application for analyzing gene transcription in the nervous system and will be applicable to human ES cells. The general approach should also be applicable to the many other cell lineages that can now be derived from mouse and human ES cells in culture. (C) 2004 Elsevier Inc. All rights reserved.