Biological characterization of genetic variants identified in genome-wide association studies (GWAS) remains a substantial challenge. Here we used human-induced pluripotent stem cells (iPSC) and their neural derivatives to characterize common variants on chromosome 3p22 that have been associated by GWAS with major mental illnesses. IPSC-derived neural progenitor cells carrying the risk allele of the single nucleotide polymorphism (SNP), rs9834970, displayed lower baseline TRANK1 expression that was rescued by chronic treatment with therapeutic dosages of valproic acid (VPA). VPA had the greatest effects on TRANK1 expression in iPSC, NPC, and astrocytes. Although rs9834970 has no known function, we demonstrated that a nearby SNP, rs906482, strongly affects binding by the transcription factor, CTCF, and that the high-affinity allele usually occurs on haplotypes carrying the rs9834970 risk allele. Decreased expression of TRANK1 perturbed expression of many genes involved in neural development and differentiation. These findings have important implications for the pathophysiology of major mental illnesses and the development of novel therapeutics.