Human embryonic stem cells (hESCs) provide an important means to characterize early stages of hematopoietic development. However, the in vivo potential of hESC‐derived hematopoietic cells has not been well defined. We demonstrate that hESC‐derived cells are capable of long‐term hematopoietic engraftment when transplanted into nonobese diabetic/severe combined immunodeficient (NOD/SCID) mice. Human CD45⁺ and CD34⁺ cells are identified in the mouse bone marrow (BM) more than 3 months after injection of hESCs that were allowed to differentiate on S17 stromal cells for 7–24 days. Secondary engraftment studies further confirm long‐term repopulating cells derived from hESCs. We also evaluated two mechanisms that may inhibit engraftment: host immunity and requirement for homing to BM. Treatment with anti‐ASGM1 antiserum that primarily acts by depletion of natural killer cells in transplanted mice leads to improved engraftment, likely due to low levels of HLA class I expressed on hESCs and CD34⁺ cells derived from hESCs. Intra‐BM injection also provided stable engraftment, with hematopoietic cells identified in both the injected and contra‐lateral femur. Importantly, no teratomas are evident in animals injected with differentiated hESCs. These results demonstrate that SCID‐repopulating cells, a close surrogate for hematopoietic stem cells, can be derived from hESCs. Moreover, both adaptive and innate immune effector cells may be barriers to engraftment of these cells.