AbstractA reliable and efficient in vitro model is needed to screen drugs for Alzheimer's disease (AD), as many drugs are currently in the developmental stage. To address this, we developed an in vitro model using amniotic membrane‐derived mesenchymal stem cells (AM‐MSCs) to screen novel drugs for AD. We differentiated AM‐MSCs into neurons and degenerated them using beta amyloid1‐42 (Aß). We then tested AD drugs, which are commercially available such as donepezil, rivastigmine, memantine, citicoline, and two novel drugs, that is, probucol, an anti‐hyperlipidaemic drug, and NMJ‐2, a cinnamic acid analogue for their potential to protect the cells against neurodegeneration. We used gene expression and immunofluorescence staining to assess the neuroprotective ability of these drugs. We also measured the ability of these drugs to reduce lactate dehydrogenase, reactive oxygen species, and nitric oxide levels, as well as their ability to stabilize the mitochondrial membrane potential and increase acetylcholine (ACh) levels. The AD drugs and novel drugs reduced cytotoxicity and oxidative stress, stabilized mitochondrial membrane potential, and restored ACh levels. Furthermore, they reduced BACE1 expression, with a concomitant increase in the expression of cholinergic markers. This AM‐MSCs‐based AD‐like model has immense potential to be an accurate human model and an alternative to animal models for testing a large number of lead compounds in a short time. Our results also suggest that the novel drugs probucol and NMJ‐2 may protect against Aß‐induced neurodegeneration.