We describe a method of generating an enriched population of NCAM-positive cells from a human teratocarcinoma cell line (NTera2/D1) and their differentiation into midbrain dopaminergic neurons in the absence of the caudalizing factor retinoic acid (RA). NTera2 cells were induced to form embryoid bodies and then to generate nestin-positive cells on treatment with serum-free defined medium supplemented with neurotrophic factors. We enriched the neuroprogenitor population by magnetic sorting of the nestin-positive cells using the antibody to neural cell adhesion molecule (NCAM). These cells were expanded by exposing them to the signaling molecule sonic hedgehog (SHH) in conjunction with fibroblast growth factor-8 (FGF-8). The predifferentiated cells when analyzed by RT-PCR showed expression of dopaminergic markers such as Nurr1, Engrailed-1, aromatic amino decarboxylase (AADC), VMAT2, tyrosine hydroxylase (TH), and dopamine transporter (DAT). These cells also stained positively for protein markers such as nestin, NCAM, MAP-2, and TH. We further demonstrated that when transplanted into the brain of Parkinsonian rats, these neuroprogenitor cells did not form tumors but differentiated into dopaminergic neurons, as revealed by TH immunolabeling. The origin of transplanted cells were further confirmed by positive immunolabeling with anti-human nuclei. Our results suggest that enriching the neuroprogenitor population by magnetic sorting prevents tumor formation and is a prerequisite before cell replacement therapy for Parkinson's disease.