Three-prime repair exonuclease 1 (TREX1) is an anti-viral enzyme that cleaves nucleic acids in the cytosol, preventing accumulation and a subsequent type I interferon-associated inflammatory response. Autoimmune diseases, including Aicardi-Goutières syndrome (AGS) and systemic lupus erythematosus, can arise when TREX1 function is compromised. AGS is a neuroinflammatory disorder with severe and persistent intellectual and physical problems. Here we generated a human AGS model that recapitulates disease-relevant phenotypes using pluripotent stem cells lacking TREX1. We observed abundant extrachromosomal DNA in TREX1-deficient neural cells, of which endogenous Long Interspersed Element-1 retrotransposons were a major source. TREX1-deficient neurons also exhibited increased apoptosis and formed three-dimensional cortical organoids of reduced size. TREX1-deficient astrocytes further contributed to the observed neurotoxicity through increased type I interferon secretion. In this model, reverse-transcriptase inhibitors rescued the neurotoxicity of AGS neurons and organoids, highlighting their potential utility in therapeutic regimens for AGS and related disorders.