Bietti’s crystalline dystrophy (BCD) is an intractable and progressive chorioretinal degenerative disease caused by mutations in the CYP4V2 gene, resulting in blindness in most patients. Although we and others have shown that retinal pigment epithelium (RPE) cells are primarily impaired in patients with BCD, the underlying mechanisms of RPE cell damage are still unclear because we lack access to appropriate disease models and to lesion-affected cells from patients with BCD. Here, we generated human RPE cells from induced pluripotent stem cells (iPSCs) derived from patients with BCD carrying a CYP4V2 mutation and successfully established an in vitro model of BCD, i.e., BCD patient-specific iPSC-RPE cells. In this model, RPE cells showed degenerative changes of vacuolated cytoplasm similar to those in postmortem specimens from patients with BCD. BCD iPSC-RPE cells exhibited lysosomal dysfunction and impairment of autophagy flux, followed by cell death. Lipidomic analyses revealed the accumulation of glucosylceramide and free cholesterol in BCD-affected cells. Notably, we found that reducing free cholesterol by cyclodextrins or δ-tocopherol in RPE cells rescued BCD phenotypes, whereas glucosylceramide reduction did not affect the BCD phenotype. Our data provide evidence that reducing intracellular free cholesterol may have therapeutic efficacy in patients with BCD.