This protocol describes a three-dimensional culture method for generating inner ear sensory epithelia, which comprises sensory hair cells and a concurrently arising neuronal population. Mouse embryonic stem cells are initially plated in 96-well plates with differentiation media; following aggregation, Matrigel is added in order to promote epithelialization. A series of small molecule applications is then used over the first 14 days of culture to guide differentiation towards an otic lineage. After 16–20 days, vesicles containing inner ear sensory hair cells and supporting cells arise from the cultured aggregates. Aggregates may be analyzed using immunohistochemistry and electrophysiology techniques. This system serves as a simple and relatively inexpensive in vitro model of inner ear development.