Neuroepithelial cells in the developing ventricular zone differentiate into neurons, astrocytes, and oligodendrocytes. It is not known, however, whether this differentiation occurs in a single step or is a pathway utilizing intermediate more restricted precursor cells. To characterize the generation of glial cells from multipotent stem cells we have cultured neuroepithelial (NEP) cells from E10.5 rat embryos. Cultured NEP cells do not express any glial differentiation markers when grown on fibronectin/laminin under nondifferentiation conditions. NEP cells, however, differentiate into A2B5 immunoreactive cells which can subsequently give rise to oligodendrocytes and astrocytes. Clonal analysis of NEP cells demonstrates that the A2B5 immunoreactive cells arise in clones that contain neurons and astrocytes, indicating that A2B5(+) cells arise from multipotent NEP precursor cells. A2B5(+) cells, maintained as undifferentiated cells over multiple passages, can subsequently give rise to both oligodendrocytes and astrocytes. A2B5(+) cells, however, do not generate neurons. Thus A2B5(+) cells represent a restricted progenitor cell population that differentiates from a multipotent NEP cell. Based on our results we propose that differentiation of the multipotential NEP cells to terminally differentiated glial cells occurs via intermediate restricted precursors.