The primary function of Leydig cells is to secrete testosterone, which is critical in the regulation of male reproduction and development. Low levels of testosterone will lead to male hypogonadism. Stem cell-derived Leydig cell transplantation may be a promising alternative therapy for male hypogonadism. Thus far, others have reported that Leydig-like cells can be derived from mesenchymal stem cells, embryonic stem cells (ESCs), and induced pluripotent stem cells. However, the efficiency of the differentiating Leydig cells remains low, and progress toward generating functional adult Leydig cells (ALCs) is limited. Herein, we describe a robust method of directing differentiation of mouse embryonic stem cells (mESCs) into Leydig-like cells in vitro by overexpression of the transcription factor steroidogenic factor-1 (SF-1) and treatment with a combination of 8-Bromoadenosine-3',5'-cyclic monophosphate and forskolin. These differentiated cells express mRNA encoding the steroidogenic enzymes and produce progesterone and testosterone. Importantly, when transplanted into male rats that had their original Leydig cells selectively eliminated by ethylene dimethanesulfonate, these in vitro-derived Leydig-like cells further developed into functional ALCs that rescued serum testosterone levels. These data provide evidence that mESCs can be induced to differentiate into Leydig-like cells in vitro, which can develop in the in vivo microenvironment.