Human induced pluripotent stem cells (hiPSCs) have great potential as a robust source of progenitors for regenerative medicine. The novel technology also enables the derivation of patient-specific cells for applications to personalized medicine, such as for personal drug screening and toxicology. However, the biological characteristics of iPSCs are not yet fully understood and their similarity to human embryonic stem cells (hESCs) is still unresolved. Variations among iPSCs, resulting from their original tissue or cell source, and from the experimental protocols used for their derivation, significantly affect epigenetic properties and differentiation potential. Here we review the potential of iPSCs for regenerative and personalized medicine, and assess their expression pattern, epigenetic memory and differentiation capabilities in relation to their parental tissue source. We also summarize the patient-specific iPSCs that have been derived for applications in biological research and drug discovery; and review risks that must be overcome in order to use iPSC technology for clinical applications.