Cholinergic neurotransmission is essential for many important functions in the brain, including cognitive mechanisms. Here we demonstrate that human embryonic stem (hES) cells differentiate into a population of neuronal cells that express the cholinergic enzyme choline acetyltransferase and homeobox proteins specifying neuronal progenitors of ventral telencephalic lineage. These differentiated cells express transcripts for cholinergic alpha(3), alpha(4) and alpha(7) nicotinic acetylcholine (ACh) receptor subunits and for M1, M2 and M3 muscarinic acetylcholine receptor (mAChR) subtypes. Stimulation with brain-derived neurotrophic factor, neurotrophin-3, ciliary neurotrophic factor and nerve growth factor increases the proportion of cholinergic neurons. These cholinergic receptors also mediate ACh-evoked increase in cytosolic calcium levels, and this response was unaffected by extracellular calcium removal and was abolished by the mAChR antagonist scopolamine. Our findings demonstrate expression of functional cholinergic receptors on hES cell-derived neurons, which may provide a source of expandable cells to facilitate screening of novel cholinergic drugs and useful for evaluating cell transplantation in animal models of cholinergic dysfunction.