Mesenchymal stem cells (MSCs) are known to express a wide range of markers belonging to all the three lineages: mesodermal, ectodermal and endodermal. Therefore, the possibility of their transdifferentiation towards a neural lineage has been an aspect of active research. In the present study, MSCs were isolated from human placental tissue (P-MSC) and subjected them to neural differentiation. It was found that the P-MSCs differentiated towards neural lineage in appropriate differentiation conditions. However, when a histone deacetylase (HDAC) inhibitor - valproic acid (VPA) - was incorporated in the medium, there was a further increase in their neural differentiation potential. The increase in the number of neurites and neural lineage specific markers was notable. The VPA-treated cells showed a significantly elevated membrane potential compared with the cells grown in only differentiation medium. When the molecular mechanism was studied, the enhancement in the neuronal lineage specification was caused by the inhibition of bone morphogenetic protein (BMP) 2 and an increase in BMP4 under both conditions. The target of VPA (HDAC2) was reduced in the VPA set, whereas HDAC1 remained unchanged. Concurrent reduction in the levels of Stat3 was observed, leading to an upregulation of βIII tubulin, which is a neuronal lineage-specific marker. The components of Notch signalling (i.e. decreased notch 1 and increased notch 3) also supported differentiation towards the neuronal lineage. Thus, the VPA treated P-MSCs can serve as an alternative source for deriving neural cells for use in both research and in clinics. Copyright © 2016 John Wiley & Sons, Ltd.