Mucopolysaccharidosis II (MPS II) is a lysosomal storage disorder (LSD), caused by iduronate 2-sulphatase (IDS) enzyme dysfunction. The neuropathology of the disease is not well understood, although the neural symptoms are currently incurable. MPS II-patient derived iPSC lines were established and differentiated to neuronal lineage. The disease phenotype was confirmed by IDS enzyme and glycosaminoglycan assay. MPS II neuronal precursor cells (NPCs) showed significantly decreased self-renewal capacity, while their cortical neuronal differentiation potential was not affected. Major structural alterations in the ER and Golgi complex, accumulation of storage vacuoles, and increased apoptosis were observed both at protein expression and ultrastructural level in the MPS II neuronal cells, which was more pronounced in GFAP + astrocytes, with increased LAMP2 expression but unchanged in their RAB7 compartment. Based on these finding we hypothesize that lysosomal membrane protein (LMP) carrier vesicles have an initiating role in the formation of storage vacuoles leading to impaired lysosomal function. In conclusion, a novel human MPS II disease model was established for the first time which recapitulates the in vitro neuropathology of the disorder, providing novel information on the disease mechanism which allows better understanding of further lysosomal storage disorders and facilitates drug testing and gene therapy approaches.