Gene-edited induced pluripotent stem cells (iPSCs) provide relevant isogenic human disease models in patient-specific or healthy genetic backgrounds. Towards this end, gene targeting using antibiotic selection along with engineered point mutations remains a reliable method to enrich edited cells. Nevertheless, integrated selection markers obstruct scarless transgene-free gene editing. Here, we present a method for scarless selection marker excision using engineered microhomology-mediated end joining (MMEJ). By overlapping the homology arms of standard donor vectors, short tandem microhomologies are generated flanking the selection marker. Unique CRISPR-Cas9 protospacer sequences nested between the selection marker and engineered microhomologies are cleaved after gene targeting, engaging MMEJ and scarless excision. Moreover, when point mutations are positioned unilaterally within engineered microhomologies, both mutant and normal isogenic clones are derived simultaneously. The utility and fidelity of our method is demonstrated in human iPSCs by editing the X-linked HPRT1 locus and biallelic modification of the autosomal APRT locus, eliciting disease-relevant metabolic phenotypes.