The study tested the hypothesis that transplantation of embryonic stem (ES) cells into rat cortex after a severe focal ischemia would promote structural repair and functional recovery. Overexpression of the human anti-apoptotic gene bcl-2 in ES cells was tested for increasing survival and differentiation of transplanted cells and promoting functional benefits. Mouse ES cells, pretreated with retinoic acid to induce differentiation down neural lineages, were transplanted into the post-infarct brain cavity of adult rats 7 days after 2-h occlusion of the middle cerebral artery (MCA). Over 1-8 weeks after transplantation, the lesion cavity filled with ES cell-derived cells that expressed markers for neurons, astrocytes, oligodendrocytes, and endothelial cells. ES cell-derived neurons exhibited dendrite outgrowth and formed a neuropil. ES cell-transplanted animals exhibited enhanced functional recovery on neurological and behavioral tests, compared to control animals injected with adult mouse cortical cells or vehicle. Furthermore, transplantation with ES cells overexpressing Bcl-2 further increased the survival of transplanted ES cells, neuronal differentiation, and functional outcome. This study supports that ES cell transplantation and gene modification may have values for enhancing recovery after stroke.