Down syndrome (DS) patients with early-onset dementia share similar neurodegenerative features with Alzheimer's disease (AD). To recapitulate the AD cell model, DS induced pluripotent stem cells (DS-iPSCs), reprogrammed from mesenchymal stem cells in amniotic fluid, were directed toward a neuronal lineage. Neuroepithelial precursor cells with high purity and forebrain characteristics were robustly generated on day 10 (D10) of differentiation. Accumulated amyloid deposits, Tau protein hyperphosphorylation and Tau intracellular redistribution emerged rapidly in DS neurons within 45 days but not in normal embryonic stem cell-derived neurons. N-butylidenephthalide (Bdph), a major phthalide ingredient of Angelica sinensis, was emulsified by pluronic F127 to reduce its cellular toxicity and promote canonical Wnt signaling. Interestingly, we found that F127-Bdph showed significant therapeutic effects in reducing secreted Aβ40 deposits, the total Tau level and the hyperphosphorylated status of Tau in DS neurons. Taken together, DS-iPSC derived neural cells can serve as an ideal cellular model of DS and AD and have potential for high-throughput screening of candidate drugs. We also suggest that Bdph may benefit DS or AD treatment by scavenging Aβ aggregates and neurofibrillary tangles.