Severe congenital neutropenia (SCN) is often associated with inherited heterozygous point mutations in ELANE, which encodes neutrophil elastase (NE). However, a lack of appropriate models to recapitulate SCN has substantially hampered the understanding of the genetic etiology and pathobiology of this disease. To this end, we generated both normal and SCN patient-derived induced pluripotent stem cells (iPSCs), and performed genome editing and differentiation protocols that recapitulate the major features of granulopoiesis. Pathogenesis of ELANE point mutations was the result of promyelocyte death and differentiation arrest, and was associated with NE mislocalization and activation of the unfolded protein response/ER stress (UPR/ER stress). Similarly, high-dose G-CSF (or downstream signaling through AKT/BCL2) rescues the dysgranulopoietic defect in SCN patient-derived iPSCs through C/EBPβ-dependent emergency granulopoiesis. In contrast, sivelestat, an NE-specific small-molecule inhibitor, corrected dysgranulopoiesis by restoring normal intracellular NE localization in primary granules; ameliorating UPR/ER stress; increasing expression of CEBPA, but not CEBPB; and promoting promyelocyte survival and differentiation. Together, these data suggest that SCN disease pathogenesis includes NE mislocalization, which in turn triggers dysfunctional survival signaling and UPR/ER stress. This paradigm has the potential to be clinically exploited to achieve therapeutic responses using lower doses of G-CSF combined with targeting to correct NE mislocalization.