The raging ethical, religious, moral, political, and safety issues pertaining to the use of embryonic stem cells for therapy and research have prompted researchers to develop possibly better alternatives that are more efficacious and serve multiple purposes. Induced pluripotent stem cells (iPSCs) developed by multiple methods provide an unparalleled source of cells that could be differentiated into progeny cells. In cell-based disease models the progeny cells mimic, at least in part, the pathology of the studied disease and are used to improve the mechanistic understanding of the pathology. Furthermore, these cells could be used to test the efficacy and safety of drugs that can reverse this phenotype. This review provides an overview of the aforesaid methods for iPSC generation and the development of certain disease-based model systems. In this review, the focus is on model systems for neurological and hematological diseases. Last but not least, the importance of the microenvironment is underscored and the significance of these model systems is discussed in the context of drug screening and development. © TÜBİTAK.