Niemann-Pick disease type A (NPA) is a lysosomal storage disease caused by mutations in the SMPD1 gene that encodes acid sphingomyelinase (ASM). Deficiency in ASM function results in lysosomal accumulation of sphingomyelin and neurodegeneration. Currently, there is no effective treatment for NPA. To accelerate drug discovery for treatment of NPA, we generated induced pluripotent stem cells from two patient dermal fibroblast lines and differentiated them into neural stem cells. The NPA neural stem cells exhibit a disease phenotype of lysosomal sphingomyelin accumulation and enlarged lysosomes. By using this disease model, we also evaluated three compounds that reportedly reduced lysosomal lipid accumulation in Niemann-Pick disease type C as well as enzyme replacement therapy with ASM. We found that α-tocopherol, γ-tocopherol, hydroxypropyl-β-cyclodextrin, and ASM reduced sphingomyelin accumulation and enlarged lysosomes in NPA neural stem cells. Therefore, the NPA neural stem cells possess the characteristic NPA disease phenotype that can be ameliorated by tocopherols, cyclodextrin, and ASM. Our results demonstrate the efficacies of cyclodextrin and tocopherols in the NPA cell-based model. Our data also indicate that the NPA neural stem cells can be used as a new cell-based disease model for further study of disease pathophysiology and for high-throughput screening to identify new lead compounds for drug development.