Regeneration of skeletal tissues is among the most promising areas of biological repair, providing a broad spectrum of potential clinical applications. In view of the ageing population and the worldwide shortage of donor tissue, tissue engineering is expected to become a major contributor to modern medicine. Recently, embryonic stem cells (ESCs) have received extensive attention due to their distinct biological properties, namely their unlimited self-renewal capacity and their pluripotency, which have rendered them a potent cell source for various medical and tissue engineering applications. The application of embryonic stem cells to skeletal tissue engineering requires inducing the in vitro differentiation of ESCs into the osteogenic and chondrogenic lineages. Although considerable progress has been made in directing embryonic stem cell differentiation towards the osteogenic and chondrogenic lineages, there are still obstacles remaining that need to be resolved before ESCs can be used as a suitable cell source in cell and tissue therapies. In particular, the efficient differentiation of ESCs in vitro towards the desired lineage requires the development of well-defined and proficient protocols, which would reduce the likelihood of spontaneous differentiation into divergent lineages and increase the available cell source for application to bone and cartilage tissue engineering therapies. Herein, this review provides a critical examination of the various experimental strategies that could be used to direct the differentiation of ESCs towards the skeletal tissue in vitro, especially the osteogenic and chondrogenic lineasges.