Stem cells, a special subset of cells derived from embryo or adult tissues, are known to present the characteristics of self-renewal, multiple lineages of differentiation, high plastic capability, and long-term maintenance. Recent reports have further suggested that neural stem cells (NSCs) derived from the adult hippocampal and subventricular regions possess the utilizing potential to develop the transplantation strategies and to screen the candidate agents for neurogenesis, neuroprotection, and neuroplasticity in neurodegenerative diseases. In this article, we review the roles of NSCs and other stem cells in neuroprotective and neurorestorative therapies for neurological and psychiatric diseases. We show the evidences that NSCs play the key roles involved in the pathogenesis of several neurodegenerative disorders, including depression, stroke, and Parkinson's disease. Moreover, the potential and possible utilities of induced pluripotent stem cells, reprogramming from adult fibroblasts with ectopic expression of four embryonic genes, are also reviewed and further discussed. An understanding of the biophysiology of stem cells could help us elucidate the pathogenicity and develop new treatments for neurodegenerative disorders. In contrast to cell transplantation therapies, the application of stem cells can further provide a platform for drug discovery and small molecular testing, including Chinese herbal medicines. In addition, the high-throughput stem cell-based systems can be used to elucidate the mechanisms of neuroprotective candidates in translation medical research for neurodegenerative diseases.