Directed differentiation of human embryonic stem (hES) cells and human induced pluripotent stem (hiPS) cells captures in vivo developmental pathways for specifying lineages in vitro, thus avoiding perturbation of the genome with exogenous genetic material. Thus far, derivation of endodermal lineages has focused predominantly on hepatocytes, pancreatic endocrine cells and intestinal cells. The ability to differentiate pluripotent cells into anterior foregut endoderm (AFE) derivatives would expand their utility for cell therapy and basic research to tissues important for immune function, such as the thymus; for metabolism, such as thyroid and parathyroid; and for respiratory function, such as trachea and lung. We find that dual inhibition of transforming growth factor (TGF)-β 2 and bone morphogenic protein (BMP) signaling after specification of definitive endoderm from pluripotent cells results in a highly enriched AFE population that is competent to be patterned along dorsoventral and anteroposterior axes. These findings provide an approach for the generation of AFE derivatives.