Ten to 15% of couples are infertile, with the most common causes being linked to the production of few or no oocytes or sperm. Yet, our understanding of human germ cell development is poor, at least in part due to the inaccessibility of early stages to genetic and developmental studies. Embryonic stem cells (ESCs) provide an in vitro system to study oocyte development and potentially treat female infertility. However, most studies of ESC differentiation to oocytes have not documented fundamental properties of endogenous development, making it difficult to determine the physiologic relevance of differentiated germ cells. Here, we sought to establish fundamental parameters of oocyte development during ESC differentiation to explore suitability for basic developmental genetic applications using the mouse as a model prior to translating to the human system. We demonstrate a timeline of definitive germ cell differentiation from ESCs in vitro that initially parallels endogenous oocyte development in vivo by single-cell expression profiling and analysis of functional milestones including responsiveness to defined maturation media, shared genetic requirement of Dazl, and entry into meiosis. However, ESC-derived oocyte maturation ultimately fails in vitro. To overcome this obstacle, we transplant ESC-derived oocytes into an ovarian niche to direct their functional maturation and, thereby, present rigorous evidence of oocyte physiologic relevance and a potential therapeutic strategy for infertility.