Alzheimer's disease (AD) is the most common form of age-related dementia, characterized by progressive memory loss and cognitive disturbance. According to the amyloid cascade hypothesis, a prevailing theory of AD pathology, accumulation of toxic Aβ42, in the brain is the initiator of AD pathogenesis, subsequently leading to the formation of neurofibrillary tangles, and consequently neuronal loss. Mutations of presenilin 1 (PS1) and presenilin 2 (PS2), which are catalytic components of γ-secretase, are causative factors for autosomal dominant early-onset familial AD (FAD). Induced pluripotent stem cell (iPSC) technology provides a new method for elucidating the molecular basis of human diseases, including neurodegenerative diseases. Here we generate iPSCs from fibroblasts of FAD patients with mutations in PS1 (A246E) and PS2 (N141I), and characterize the differentiation of these cells into neurons. We find that FAD-iPSC-derived differentiated neurons have increased toxic Aβ42 secretion, recapitulating the molecular pathogenesis of mutant presenilins. Furthermore, secretion of Aβ42 from these neurons sharply responds to γ secretase inhibitors and modulators, indicating the potential for identification and validation of candidate drugs. Our findings demonstrate that the FAD-iPSC-derived neuron is a valid model of AD and provides an innovative strategy for the study of late-onset neurodegenerative diseases.