Animal embryonic stem cells (ESCs) provide powerful tool for studies of early embryonic development, gene targeting, cloning, and regenerative medicine. However, the majority of attempts to establish ESC lines from large animals, especially ungulate mammals have failed. Recently, another type of pluripotent stem cells, known as induced pluripotent stem cells (iPSCs), have been successfully generated from mouse, human, monkey, rat and pig. In this study we show sheep fibroblasts can be reprogrammed to pluripotency by defined factors using a drug-inducible system. Sheep iPSCs derived in this fashion have a normal karyotype, exhibit morphological features similar to those of human ESCs and express AP, Oct4, Sox2, Nanog and the cell surface marker SSEA-4. Pluripotency of these cells was further confirmed by embryoid body (EB) and teratoma formation assays which generated derivatives of all three germ layers. Our results also show that the substitution of knockout serum replacement (KSR) with fetal bovine serum in culture improves the reprogramming efficiency of sheep iPSCs. Generation of sheep iPSCs places sheep on the front lines of large animal preclinical trials and experiments involving modification of animal genomes.