This 3-week protocol produces embryonic-like stem cells from human umbilical cord blood (CBEs) for neural differentiation using a three-step system (cell isolation/expansion/differentiation). The CBE isolation produces a highly purified fraction (CD45-, CD33-, CD7-, CD235a-) of small pluripotent stem cells (2-3 μm in diameter) coexpressing embryonic stem cell markers including Oct4 and Sox2. Initial CBE expansion is performed in high density (5-10 millions per ml) in the presence of extracellular matrix proteins and epidermal growth factor. Subsequent neural differentiation of CBEs requires sequential introduction of morphogenes, retinoic acid, brain-derived neurotrophic factor and cyclic AMP. Described methods emphasize defined media and reagents at all stages of the experiment comparable to protocols described for culturing human embryonic stem cells and cells from other somatic stem cell sources. Neural progenitor and cells generated from CBEs may be used for in vitro drug testing and cell-based assays and potentially for clinical transplantation.