Adult cells have been reprogrammed into induced pluripotent stem (iPS) cells by introducing pluripotency-associated transcription factors. Here, we discuss recent advances and challenges of in vitro reprogramming and future prospects of iPS cells for their use in diagnosis and cell therapy. The generation of patient-specific iPS cells for clinical application requires alternative strategies, because genome-integrating viral vectors may cause insertional mutagenesis. Moreover, when suitable iPS cell lines will be available, efficient and selective differentiation protocols are needed to generate transplantable grafts. Finally, we point to the requirement of a regulatory framework necessary for the commercial use of iPS cells.