Dysfunction of basal forebrain cholinergic neurons (BFCNs) and γ-aminobutyric acid (GABA) interneurons, derived from medial ganglionic eminence (MGE), is implicated in disorders of learning and memory. Here we present a method for differentiating human embryonic stem cells (hESCs) to a nearly uniform population of NKX2.1+ MGE-like progenitor cells. After transplantation into the hippocampus of mice in which BFCNs and some GABA neurons in the medial septum had been destroyed by mu P75-saporin, human MGE-like progenitors, but not ventral spinal progenitors, produced BFCNs that synaptically connected with endogenous neurons, whereas both progenitors generated similar populations of GABA neurons. Mice transplanted with MGE-like but not spinal progenitors showed improvements in learning and memory deficits. These results suggest that progeny of the MGE-like progenitors, particularly BFCNs, contributed to learning and memory. Our findings support the prospect of using human stem cell–derived MGE-like progenitors in developing therapies for neurological disorders of learning and memory.