Basal forebrain cholinergic neurons (bfCNs) which provide innervation to the hippocampus and cortex, are required for memory and learning, and are primarily affected in Alzheimer's Disease (AD), resulting in related cognitive decline. Therefore generation of a source of bfCNs from human pluripotent stem cells (hPSCs) is crucial for in vitro disease modeling and development of novel AD therapies. In addition, for the advancement of regenerative approaches there is a requirement for an accurate developmental model to study the neurogenesis and survival of this population. Here we demonstrate the efficient production of bfCNs, using a novel embryoid body (EB) based non-adherent differentiation (NAdD) protocol. We establish a specific basal forebrain neural stem cell (NSC) phenotype via expression of the basal forebrain transcription factors NKX2.1 and LHX8, as well as the general forebrain marker FOXG1. We present evidence that this lineage is achieved via recapitulation of embryonic events, with induction of intrinsic hedgehog signaling, through the use of a 3D non-adherent differentiation system. This is the first example of hPSC-derived basal forebrain-like NSCs, which are scalable via self-renewal in prolonged culture. Furthermore upon terminal differentiation these basal forebrain-like NSCs generate high numbers of cholinergic neurons expressing the specific markers ChAT, VACht and ISL1. These hPSC-derived bfCNs possess characteristics that are crucial in a model to study AD related cholinergic neuronal loss in the basal forebrain. Examples are expression of the therapeutic target p75(NTR), the release of acetylcholine, and demonstration of a mature, and functional electrophysiological profile. In conclusion, this work provides a renewable source of human functional bfCNs applicable for studying AD specifically in the cholinergic system, and also provides a model of the key embryonic events in human bfCN development.