The derivation of human embryonic stem cells (hESCs), whose in vitro differentiation might be directed toward different cell types, has raised the hope for cell replacement therapies. Despite the emerging reports to differentiate hESCs into specific lineages and then to distinct mature cell subsets, there are still several issues that need to be resolved before transplantation of these cells can be realized. In this context, immune rejection by the host immune system has been considered to be one of the greatest hurdles for cellular transplantation. However, recent data support the concept that hESCs and/or their differentiated derivatives possess immune-privileged properties, suggesting that cells derived from hESC may provide a potential tool for induction of immunetolerance. Currently, our understanding of the tolerogenic potential of hESCs is limited to assessment by in vitro assays or xenogenic transplantation approaches in vivo. Human ESCs express low levels of major histocompatability complex (MHC)-I antigens and lack expression of MHC-II antigens and costimulatory molecules, and are not recognized by natural killer cells and inhibit T-cell induced-stimulation by third-party antigen-presenting cells. Upon injection into immunocompetent mice, hESCs are unable to induce an immune response as demonstrated by their inability to induce an inflammatory response. Based on these initial observations, further studies in hESCs immunobiology are warranted and may reveal unique mechanisms that account for the immunological properties of hESCs. Here, we explore the prospect of using hESCs and their derivatives for immunomodulation and tolerance induction.