Differentiation methods for human induced pluripotent stem cells (hiPSCs) typically yield progeny from multiple tissue lineages, limiting their use for drug testing and autologous cell transplantation. In particular, early retina and forebrain derivatives often intermingle in pluripotent stem cell cultures, owing to their shared ancestry and tightly coupled development. Here, we demonstrate that three-dimensional populations of retinal progenitor cells (RPCs) can be isolated from early forebrain populations in both human embryonic stem cell and hiPSC cultures, providing a valuable tool for developmental, functional, and translational studies. Using our established protocol, we identified a transient population of optic vesicle (OV)-like structures that arose during a time period appropriate for normal human retinogenesis. These structures were independently cultured and analyzed to confirm their multipotent RPC status and capacity to produce physiologically responsive retinal cell types, including photoreceptors and retinal pigment epithelium (RPE). We then applied this method to hiPSCs derived from a patient with gyrate atrophy, a retinal degenerative disease affecting the RPE. RPE generated from these hiPSCs exhibited a disease-specific functional defect that could be corrected either by pharmacological means or following targeted gene repair. The production of OV-like populations from human pluripotent stem cells should facilitate the study of human retinal development and disease and advance the use of hiPSCs in personalized medicine.