Application of embryonic and adult stem cells in regenerative medicine will require efficient protocols for directing stem cell differentiation into well-defined lineages. The use of exogenous cytokines, growth factors, or extracellular matrix substratum, will obviously require extended durations of in vitro culture. With autologous adult stem cells, this could delay transplantation to the patient, as well as alter the immunogenicity of the cultured autologous cells. Genetic modulation to direct stem cell differentiation would obviate prolonged durations of in vitro culture; but there are overwhelming safety concerns with regards to the application of recombinant DNA technology in human clinical therapy. A novel alternative would be to incorporate protein transduction domains (PTD) into recombinant transcription factors that play important roles in somatic differentiation. Such protein-engineered transcription factors will then have the ability to translocate across the cell membrane and be internalized within the cytosol, thereby acting as paracrine signaling molecules. Upon internalization, the recombinant transcription factors would only have a limited active half-life, so that their effects are only transient. However, this could provide sufficient stimulus for initiating stem cell differentiation into a required lineage.