The autosomal recessive disorder ataxia-telangiectasia (A-T) is characterized by genome instability, cancer predisposition and neurodegeneration. Although the role of ataxia-telangiectasia mutated (ATM) protein, the protein defective in this syndrome, is well described in the response to DNA damage, its role in protecting the nervous system is less clear. We describe the establishment and characterization of patient-specific stem cells that have the potential to address this shortcoming. Olfactory neurosphere (ONS)-derived cells were generated from A-T patients, which expressed stem cell markers and exhibited A-T molecular and cellular characteristics that included hypersensitivity to radiation, defective radiation-induced signaling and cell cycle checkpoint defects. Introduction of full-length ATM cDNA into these cells corrected defects in the A-T cellular phenotype. Gene expression profiling and pathway analysis revealed defects in multiple cell signaling pathways associated with ATM function, with cell cycle, cell death and DNA damage response pathways being the most significantly dysregulated. A-T ONS cells were also capable of differentiating into neural progenitors, but they were defective in neurite formation, number of neurites and length of these neurites. Thus, ONS cells are a patient-derived neural stem cell model that recapitulate the phenotype of A-T, do not require genetic reprogramming, have the capacity to differentiate into neurons and have potential to delineate the neurological defect in these patients.