We recently developed a technique for generating hypothalamic neurons from human pluripotent stem cells. Here, as proof of principle, we examine the use of these cells in modeling of a monogenic form of severe obesity: PCSK1 deficiency. The cognate enzyme, PC1/3, processes many prohormones in neuroendocrine and other tissues. We generated PCSK1 (PC1/3)-deficient human embryonic stem cell (hESC) lines using both short hairpin RNA and CRISPR-Cas9, and investigated pro-opiomelanocortin (POMC) processing using hESC-differentiated hypothalamic neurons. The increased levels of unprocessed POMC and the decreased ratios (relative to POMC) of processed POMC-derived peptides in both PCSK1 knockdown and knockout hESC-derived neurons phenocopied POMC processing reported in PC1/3-null mice and PC1/3-deficient patients. PC1/3 deficiency was associated with increased expression of melanocortin receptors and PRCP (prolylcarboxypeptidase, a catabolic enzyme for α-melanocyte stimulating hormone (αMSH)), and reduced adrenocorticotropic hormone secretion. We conclude that the obesity accompanying PCSK1 deficiency may not be primarily due to αMSH deficiency.