Embryonic stem cells (ESCs) have been used extensively as in vitro models of neural development and disease, with special efforts towards their conversion into forebrain progenitors and neurons. The forebrain is the most complex brain region, giving rise to several fundamental structures, such as the cerebral cortex, the hypothalamus, and the retina. Due to the multiplicity of signaling pathways playing different roles at distinct times of embryonic development, the specification and patterning of forebrain has been difficult to study in vivo. Research performed on ESCs in vitro has provided a large body of evidence to complement work in model organisms, but these studies have often been focused more on cell type production than on cell fate regulation. In this review, we systematically reassess the current literature in the field of forebrain development in mouse and human ESCs with a focus on the molecular mechanisms of early cell fate decisions, taking into consideration the specific culture conditions, exogenous and endogenous molecular cues as described in the original studies. The resulting model of early forebrain induction and patterning provides a useful framework for further studies aimed at reconstructing forebrain development in vitro for basic research or therapy.