Retinal pigment epithelium (RPE) cell dysfunction is central to the pathogenesis of age-related macular degeneration (AMD), a leading cause of adult blindness. Aging, the single biggest risk factor for AMD development, favors increase in RPE autofluorescent material due to accumulation of POS-digestion by-products through lysosomal dysfunction and impaired POS degradation. Apart from aging, environmental agents affect lysosomal function in multiple model systems and are implicated in AMD. Iron (Fe) overload and cigarette smoke exposure are the two environmental factors that are known to affect the lysosomal pathway and impact RPE cell health. However, the impact of Fe and cigarette smoke, on POS processing and its consequence for autofluorescent material accumulation in human RPE cells are yet to be established. Human induced pluripotent stem cell (hiPSC)-derived RPE, which phagocytoses and degrades POS in culture and can be derived from control individuals (no history/susceptibility for retinal disease), provides a model system to investigate the singular effect of excess Fe and/or cigarette smoke on POS processing by RPE cells. Using at least three distinct control hiPSC lines, we show that, compared to untreated hiPSC-RPE cells, POS uptake is reduced in both Fe (ferric ammonium citrate or FAC) and FAC + CSE (cigarette smoke extract)-treated hiPSC-RPE cells. Furthermore, exposure of hiPSC-RPE cultures to FAC + CSE leads to reduced levels of active cathepsin-D (CTSD), a lysosomal enzyme involved in POS processing, and causes delayed degradation of POS. Notably, delayed degradation of POS over time (2 weeks) in hiPSC-RPE cells exposed to Fe and CSE was sufficient to increase autofluorescent material build-up in these cells. Given that inefficient POS processing-mediated autofluorescent material accumulation in RPE cells has already been linked to AMD development, our results implicate a causative role of environmental agents, like Fe and cigarette smoke, in AMD.