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Bipolar disorder (BD) and schizophrenia are psychiatric disorders that manifest unusual mental, behavioral, and emotional patterns leading to suffering and disability. These disorders span heterogeneous conditions with variable heredity and elusive pathophysiology. Mood stabilizers such as lithium and valproic acid (VPA) have been shown to be effective in BD and, to some extent in schizophrenia. This review highlights the efficacy of lithium and VPA treatment in several randomized, controlled human trials conducted in patients suffering from BD and schizophrenia. Furthermore, we also address the importance of using induced pluripotent stem cells (iPSCs) as a disease model for mirroring the disease's phenotypes. In BD, iPSC-derived neurons enabled finding an endophenotype of hyperexcitability with increased hyperpolarizations. Some of the disease phenotypes were significantly alleviated by lithium treatment. VPA studies have also reported rescuing the Wnt/β-catenin pathway and reducing activity. Another significant contribution of iPSC models can be attributed to studying the molecular etiologies of schizophrenia such as abnormal differentiation of patient-derived neural stem cells, decreased neuronal connectivity and neurite number, impaired synaptic function, and altered gene expression patterns. Overall, despite significant advances using these novel models, much more work remains to fully understand the mechanisms by which these disorders affect the patients' brains.