Generation of induced pluripotent stem (iPS) cells using defined factors has been considered a ground-breaking step towards establishing patient-specific pluripotent stem cells for various applications. The isolation of human embryonic stem (ES) cells set the standard that pluripotent stem cells are attainable as potentially immortal cells for regeneration of many types of tissues. Different approaches have been tested to obtain pluripotent stem cells by circumventing the need for embryos. iPS cells appear to be an ideal substitute for ES cells. Since the first demonstration of creating iPS cells in 2006, tremendous efforts have been made into improving iPS cell generation methods and understanding the reprogramming mechanism as well as the nature of iPS cells. To improve iPS cell generation, several approaches have been taken: (1) eliminate the viral vector integration after delivering the defined factors; (2) select different cell types that more effectively give rise to iPS cells; (3) use of chemicals to facilitate reprogramming; (4) use of protein factors to reprogram cells. The iPS cells are also being rigorously characterized in comparison to ES cells. All these efforts are made for the purpose of making iPS cells closer to clinical applications. This article will give an overview of the following areas: (1) mechanisms of iPS cell derivation; (2) characterization of iPS cells; (3) iPS cells for cell-based therapy; and (4) iPS cells for studying disease mechanism. Questions as to what aspects of iPS cells require further understanding before they may be put to clinical use are also discussed.