Mouse embryonic stem cells (mESCs) represent an attractive cellular system for in vitro studies in developmental biology as well as toxicology because of their potential to differentiate into all fetal cell lineages. The present study aims to establish an in vitro system for developmental neurotoxicity testing employing mESCs. We developed a robust and reproducible protocol for fast and efficient differentiation of the mESC line D3 into neural cells, optimized with regard to chemical testing. Morphological examination and immunocytochemical staining confirmed the presence of different neural cell types, including neural progenitors, neurons, astrocytes, oligodendrocytes, and radial glial cells. Neurons derived from D3 cells expressed the synaptic proteins PSD95 and synaptophysin, and the neurotransmitters serotonin and γ-aminobutyric acid. Calcium ion imaging revealed the presence of functionally active glutamate and dopamine receptors. In addition, flow cytometry analysis of the neuron-specific marker protein MAP2 on day 12 after induction of differentiation demonstrated a concentration dependent effect of the neurodevelopmental toxicants methylmercury chloride, chlorpyrifos, and lead acetate on neuronal differentiation. The current study shows that D3 mESCs differentiate efficiently into neural cells involving a neurosphere-like state and that this system is suitable to detect adverse effects of neurodevelopmental toxicants. Therefore, we propose that the protocol for differentiation of mESCs into neural cells described here could constitute one component of an in vitro testing strategy for developmental neurotoxicity.