We examined the gene expression and DNA methylation of 49 human induced pluripotent stem cells (hiPSCs) and 10 human embryonic stem cells and found overlapped variations in gene expression and DNA methylation in the two types of human pluripotent stem cell lines. Comparisons of the in vitro neural differentiation of 40 hiPSCs and 10 human embryonic stem cells showed that seven hiPSC clones retained a significant number of undifferentiated cells even after neural differentiation culture and formed teratoma when transplanted into mouse brains. These differentiation-defective hiPSC clones were marked by higher expression levels of several genes, including those expressed from long terminal repeats of specific human endogenous retroviruses. These data demonstrated a subset of hiPSC lines that have aberrant gene expression and defective potential in neural differentiation, which need to be identified and eliminated before applications in regenerative medicine.