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.