Maternal smoking during the perinatal period is linked to adverse neonatal outcomes such as low birth weight and birth defects. Numerous studies have shown that cigarette smoke or nicotine exposure has a widespread effect on fetal nerve development. However, there exists a lack of understanding of what specific changes occur at the cellular level on persistent exposure to cigarette smoke during the differentiation of embryonic stem cells (ESCs) into neural cells. We previously investigated the effects of cigarette smoke extract (CSE) and its major component, nicotine, on the neural differentiation of mouse embryonic stem cells (mESCs). Differentiation of mESCs into neural progenitor cells (NPCs) or neural crest cells (NCCs) was induced with chemically defined media, and the cells were continuously exposed to CSE or nicotine during neural differentiation and development. Disturbed balance of the pluripotency state was observed in the NPCs, with consequent inhibition of neurite outgrowth and glial fibrillary acidic protein (Gfap) expression. These inhibitions correlated with the altered expression of proteins involved in the Notch-1 signaling pathways. The migration ability of NCCs was significantly decreased by CSE or nicotine exposure, which was associated with reduced protein expression of migration-related proteins. Taken together, we concluded that CSE and nicotine inhibit differentiation of mESCs into NPCs or NCCs, and may disrupt functional development of neural cells. These results imply that cigarette smoking during the perinatal period potentially inhibits neural differentiation and development of ESCs cells, leading to neonatal abnormal brain development and behavioral abnormalities.