Chemical compounds have emerged as powerful tools for modulating ESC functions and deriving induced pluripotent stem cells (iPSCs), but documentation of compound-induced efficient directed differentiation in human ESCs (hESCs) and human iPSC (hiPSCs) is limited. By screening a collection of chemical compounds, we identified compound C (also denoted as dorsomorphin), a protein kinase inhibitor, as a potent regulator of hESC and hiPSC fate decisions. Compound C suppresses mesoderm, endoderm, and trophoectoderm differentiation and induces rapid and high-efficiency neural conversion in both hESCs and hiPSCs, 88.7% and 70.4%, respectively. Interestingly, compound C is ineffective in inducing neural conversion in mouse ESCs (mESCs). Large-scale kinase assay revealed that compound C targets at least seven transforming growth factor beta (TGF-β) superfamily receptors, including both type I and type II receptors, and thereby blocks both the Activin and bone morphogenesis protein (BMP) signaling pathways in hESCs. Dual inhibition of Activin and BMP signaling accounts for the effects of compound C on hESC differentiation and neural conversion. We also identified muscle segment homeobox gene 2 (MSX2) as a downstream target gene of compound C and a key signaling intermediate of the BMP pathway in hESCs. Our findings provide a single-step cost-effective method for efficient derivation of neural progenitor cells in adherent culture from human pluripotent stem cells. Therefore, it will be uniquely suitable for the production of neural progenitor cells in large scale and should facilitate the use of stem cells in drug screening and regenerative medicine and study of early human neural development. © AlphaMed Press.