Background: Biallelic mutations in CYP27A1 and CYP7B1, two critical genes regulating cholesterol and bile acid metabolism, cause cerebrotendinous xanthomatosis (CTX) and hereditary spastic paraplegia type 5 (SPG5), respectively. These rare diseases are characterized by progressive degeneration of corticospinal motor neuron axons, yet the underlying pathogenic mechanisms and strategies to mitigate axonal degeneration remain elusive. Methods: To generate induced pluripotent stem cell (iPSC)-based models for CTX and SPG5, we reprogrammed patient skin fibroblasts into iPSCs by transducing fibroblast cells with episomal vectors containing pluripotency factors. These patient-specific iPSCs, as well as control iPSCs, were differentiated into cortical projection neurons (PNs) and examined for biochemical alterations and disease-related phenotypes. Results: CTX and SPG5 patient iPSC-derived cortical PNs recapitulated several disease-specific biochemical changes and axonal defects of both diseases. Notably, the bile acid chenodeoxycholic acid (CDCA) effectively mitigated the biochemical alterations and rescued axonal degeneration in patient iPSC-derived neurons. To further examine underlying disease mechanisms, we developed CYP7B1 knockout human embryonic stem cell (hESC) lines using CRISPR-cas9-mediated gene editing and, following differentiation, examined hESC-derived cortical PNs. Knockout of CYP7B1 resulted in similar axonal vesiculation and degeneration in human cortical PN axons, confirming a cause-effect relationship between gene deficiency and axonal degeneration. Interestingly, CYP7B1 deficiency led to impaired neurofilament expression and organization as well as axonal degeneration, which could be rescued with CDCA, establishing a new disease mechanism and therapeutic target to mitigate axonal degeneration. Conclusions: Our data demonstrate disease-specific lipid disturbances and axonopathy mechanisms in human pluripotent stem cell-based neuronal models of CTX and SPG5 and identify CDCA, an established treatment of CTX, as a potential pharmacotherapy for SPG5. We propose this novel treatment strategy to rescue axonal degeneration in SPG5, a currently incurable condition.