For the promise of human induced pluripotent stem cells (iPSCs) to be realized, it is necessary to ask if and how efficiently they may be differentiated to functional cells of various lineages. Here, we have directly compared the neural-differentiation capacity of human iPSCs and embryonic stem cells (ESCs). We have shown that human iPSCs use the same transcriptional network to generate neuroepithelia and functionally appropriate neuronal types over the same developmental time course as hESCs in response to the same set of morphogens; however, they do it with significantly reduced efficiency and increased variability. These results were consistent across iPSC lines and independent of the set of reprogramming transgenes used to derive iPSCs as well as the presence or absence of reprogramming transgenes in iPSCs. These findings, which show a need for improving differentiation potency of iPSCs, suggest the possibility of employing human iPSCs in pathological studies, therapeutic screening, and autologous cell transplantation.