Gamma aminobutyric acid (GABA)-expressing interneurons are the major inhibitory cells of the cerebral cortex and hippocampus. These interneurons originate in the medial ganglionic eminence (MGE) and lateral ganglionic eminence of the ventral forebrain during embryonic development and show reduced survival and function in a variety of neurological disorders, including temporal lobe epilepsy. We and others have proposed that embryonic stem cell (ESC)-derived ventral forebrain progenitors might provide a source of new GABAergic interneurons for cell-based therapies. While human ESCs (hESCs) are readily differentiated in vitro into dorsal telencephalic neural progenitors, standard protocols for generating ventral subtypes of telencephalic progenitors are less effective. We now report efficient derivation of GABAergic progenitors using an established hESC reporter line that expresses green fluorescent protein (GFP) under the control of an endogenous NKX2.1 promoter. GABAergic progenitors were derived from this hESC line by a modified monolayer neural differentiation protocol. Consistent with sonic hedgehog (SHH)-dependent specification of NKX2.1-positive progenitors in the embryonic MGE, we show a dose-dependent increase in the generation of NKX2.1:GFP-positive progenitors after SHH treatment in vitro. Characterization of NKX2.1:GFP-positive cells confirms their identity as MGE-like neural progenitors, based on gene expression profiles and their ability to differentiate into GABAergic interneurons. We are also able to generate highly enriched populations of NKX2.1:GFP-positive progenitors, including cells with telencephalic identity, by fluorescence-activated cell sorting. These hESC-derived ventral forebrain progenitors are suitable candidates for cell-based therapies that aim at replacing dysfunctional or damaged cortical or hippocampal GABAergic interneurons.