Mesenchymal stem cells (MSCs) are adult stem cells with the capacity of self-renewal and multilineage differentiation, and can be isolated from several adult tissues. However, isolating MSCs from adult tissues for cell therapy is hampered by the invasive procedure, the rarity of the cells and their attenuated proliferation capacity when cultivated and expanded in vitro. Human MSCs derived from induced pluripotent stem cells (iPSC-MSCs) have now evolved as a promising alternative cell source for MSCs and regenerative medicine. Several groups, including ours, have reported successful derivation of functional iPSC-MSCs and applied these cells in MSC-based therapeutic testing. Still, the current experience and understanding of iPSC-MSCs with respect to production methods, safety and efficacy are primitive. In this review, we highlight the methodological progress in iPSC-MSC research, describing the importance of choosing the right sources of iPSCs, iPSC reprogramming methods, iPSC culture systems, embryoid body intermediates, pathway inhibitors, basal medium, serum, growth factors and culture surface coating. We also highlight some progress in the application of iPSC-MSCs in direct cell therapy, tissue engineering and gene therapy.