Human-induced pluripotent stem cells (iPSCs) offer a novel, timely approach for investigating the aetiology of neuropsychiatric disorders. Although we are starting to gain more insight into the specific mechanisms that cause Alzheimer's disease and other forms of dementia, this has not resulted in therapies to slow the pathological processes. Animal models have been paramount in studying the neurobiological processes underlying psychiatric disorders. Nonetheless, these human conditions cannot be entirely recapitulated in rodents. Human cell models derived from patients’ cells now offer new hope for improving our understanding of the early molecular stages of these diseases, through to validating therapeutics. The impact of dementia is increasing, and a new model to investigate the early stages of this disease is heralded as an essential, new platform for translational research. In this paper, we review current literature using iPSCs to study Alzheimer's disease, describe drug discovery efforts using this platform, and discuss the future potential for this technology in psychiatry research.