Neuronal progenitor cells (NPCs) residing in the adult subependymal zone (SEZ) are a potential source of expandable cells for autologous transplantation to replace neurons lost in multiple types of brain injury. To characterize the capacity of these cells for neuronal differentiation in a mature ectopic environment, NPCs expanded from the SEZ of adult rats were transplanted to the adult dentate gyrus. Cultures comprised a heterogeneous population of proliferating cells, which expressed nestin (47%) and GFAP (37%), with many cells expressing both progenitor cell markers (31%). In grafts of undifferentiated cells, as well as in grafts of cells that were induced to differentiate in vitro with retinoic acid, 35% of the transplanted SEZ-derived cells exhibited immunohistochemical and morphological features characteristic of hippocampal granule cell neurons. These novel results indicate that in vitro expanded adult SEZ NPCs are capable of heterotypic neuronal differentiation in a neurogenic region of the adult brain.