"America's scientists need powerful tools to find better ways to diagnose and treat health problems," Health and Human Services Secretary Tommy Thompson said in a statement.
"Understanding the biology of stem cells can help fill in the blanks about what causes cells to misbehave in disease."
Stem cells taken from tiny embryos just a few days old have the potential to form any kind of cell, tissue or organ in the body.
Scientists hope to learn how to direct their development, with the eventual aim of personally tailored treatment for patients with a range of diseases from juvenile diabetes to Parkinson's. The cells could also treat spinal cord injuries, cancer and heart disease.
Several types of stem cells can be used, but researchers believe embryonic stem cells are the most flexible. Now they must be made using cloning technology, but the hope is that by studying embryonic stem cells, scientists can figure out how to take any old cell and make it perform the same magic.
"What gives stem cells their unique property to self-renew? When, how and why does a stem cell decide to differentiate, becoming another kind of cell?" NIH director Dr. Elias Zerhouni asked in a statement.
"There is so much basic research we must conduct before we can unlock the potential of these cells and fulfill their promise," he added.
Supporters of stem cell research say federal funding is vital to keep the work in the public domain and make sure that ethical constraints are followed.
The researchers receiving the grants include the University of Wisconsin's James Thomson, one of the discoverers of human embryonic stem cells.
