Discovery of induced pluripotent stem (iPS) cells in 2006 provided a new path for cell transplantation and drug screening. The iPS cells are stem cells derived from somatic cells that have been genetically reprogrammed into a pluripotent state. Similar to embryonic stem (ES) cells, iPS cells are capable of differentiating into three germ layers, eliminating some of the hurdles in ES cell technology. Further progress and advances in iPS cell technology, from viral to non-viral systems and from integrating to non-integrating approaches of foreign genes into the host genome, have enhanced the existing technology, making it more feasible for clinical applications. In particular, advances in iPS cell technology should enable autologous transplantation and more efficient drug discovery. Cell transplantation may lead to improved treatments for various diseases, including neurological, endocrine, and hepatic diseases. In studies on drug discovery, iPS cells generated from patient-derived somatic cells could be differentiated into specific cells expressing specific phenotypes, which could then be used as disease models. Thus, iPS cells can be helpful in understanding the mechanisms of disease progression and in cell-based efficient drug screening. Here, we summarize the history and progress of iPS cell technology, provide support for the growing interest in iPS cell applications with emphasis on practical uses in cell-based drug screening, and discuss some challenges faced in the use of this technology.