Bipolar disorder (BD) and schizophrenia (SCZ) are uniquely human disorders with a complex pathophysiology which involves adverse neuropathological events in brain development. High disease polygenicity and limited access to live human brain tissue make these disorders exceedingly challenging to study mechanistically. Cellular cultures and brain organoids generated from human-derived pluripotent stem cells preserve the genetic background of the donor cells and recapitulate some of the defining characteristics of human brain architecture and early spatiotemporal development. These model systems have already proven successful in deciphering some of the neuropathological perturbations in BD and SCZ, and methodological advancements, such as the functional integration of two or more region-specific organoids and organoid transplantation in animals, promise to deliver increasingly refined insights. Here we review a selection of recent discoveries achieved by stem cell-based models, with a particular focus on patterns of cellular and molecular convergence and divergence between BD and SCZ. We first provide a brief overview of the evidence from glial and neuronal cell cultures and brain organoids, centering our discussion on several key functional domains, including neuroinflammation, neuronal excitability, and mitochondrial function. We then review recent findings demonstrating the power of integrating stem cell-based systems with gene editing technologies to elucidate the functional consequences of risk variants identified through genetic association studies. We end with a discussion of current challenges and some promising avenues for future research.