Research on the biology of adult stem cells, embryonic stem cells and induced pluripotent stem cells, as well as cell-based strategies for treating nervous system disorders has begun to create the hope that these cells may be used for therapy in humans after injury or disease. In animal models of neurological diseases, transplantation of stem cells or their derivatives can improve function not only due to direct replacement of lost neurons or glia, but also by providing trophic support. Despite intense research efforts to translate these studies from the bench to bedside, critical problems remain at several steps in this process. Recent technological advancements in both the derivation of stem cells and their directed differentiation to lineage-committed progenitors have brought us closer to therapeutic applications. Several preclinical studies have already explored the behavior of transplanted cells with respect to proliferation, migration, differentiation and survival, especially in complex pathological disease environments. In this review, we examine the current status, progress, pitfalls, and potential of these stem cell technologies, focusing on directed differentiation of human stem cells into various neural lineages, including dopaminergic neurons, motor neurons, oligodendroglia, microglia, and astroglia, and on advancements in cell-based regenerative strategies for neural repair and criteria for successful therapeutic applications.