Current brain spheroids or organoids derived from human induced pluripotent stem cells (hiPSCs) still lack a microglia component, the resident immune cells in the brain. The objective of this study is to engineer brain region-specific organoids from hiPSCs incorporated with isogenic microglia-like cells in order to enhance immune function. In this study, microglia-like cells were derived from hiPSCs using a simplified protocol with stage-wise growth factor induction, which expressed several phenotypic markers, including CD11b, IBA-1, CX3CR1, and P2RY12, and phagocytosed micron-size super-paramagnetic iron oxides. The derived cells were able to upregulate pro-inflammatory gene (TNF-α) and secrete anti-inflammatory cytokines (i.e., VEGF, TGF-β1, and PGE2) when stimulated with amyloid β42 oligomers, lipopolysaccharides, or dexamethasone. The derived isogenic dorsal cortical (higher expression of TBR1 and PAX6) and ventral (higher expression of NKX2.1 and PROX1) spheroids/organoids displayed action potentials and synaptic activities. Co-culturing the microglia-like cells (MG) with the dorsal (D) or ventral (V) organoids showed differential migration ability, intracellular Ca
2+
signaling, and the response to pro-inflammatory stimuli (V-MG group had higher TNF-α and TREM2 expression). Transcriptome analysis exhibited 37 microglia-related genes that were differentially expressed in MG and D-MG groups. In addition, the hybrid D-MG spheroids exhibited higher levels of immunoreceptor genes in activating members, but the MG group contained higher levels for most of genes in inhibitory members (except SIGLEC5 and CD200). This study should advance our understanding of the microglia function in brain-like tissue and establish a transformative approach to modulate cellular microenvironment toward the goal of treating various neurological disorders.