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Neurosphere cultures derived from fetal brain regions can proliferate in response to exogenous growth factors such as basic fibroblast growth factor (bFGF) and give rise to undifferentiated precursor cells that form a floating neurosphere. In this study, neurospheres generated from the ganglionic eminence region of embryonic day 15 (E15) rat embryos were treated in the presence or absence of ethanol. We found that such neurospheres respond to environmental toxins such as alcohol and still retain the multi-potential capability of differentiation into neuronal and glial cell types. Ethanol at high concentration (50 mM) affected proliferation, gliogenesis and neurogenesis, although the most profound effect was observed on glial phenotype. Our findings suggest that extrinsic agents, such as alcohol can alter intrinsic cellular mechanisms of stem cell fate choices contributing to altered neurogenesis and gliogenesis during central nervous system (CNS) maturation, which might in part be responsible for defective astroglial and neuronal functions in fetal alcohol syndrome (FAS).