This study describes the development of a human induced pluripotent stem cell (hiPSC)-derived small intestine-on-chip system that mimics the physiological microenvironment of the human small intestine. The system uses organ-on-chip technology to create a more physiological *in vitro* environment, allowing access to both the apical and basolateral sides of the intestinal epithelial barrier. By locally exposing cells to expansion and differentiation media, the researchers replicated growth factor gradients along the crypt–villus axis, which induced the self-organization of intestinal epithelial cells into villus-like folds with physiological barrier integrity. Additionally, myofibroblast and neural subtypes emerged and formed a layer in the bottom channel underneath the epithelial tissue. The growth factor gradients efficiently balanced dividing and mature cell types, resulting in an intestinal epithelial composition that resembles the human adult small intestine. Single-cell RNA-sequencing (scRNAseq) analysis confirmed the presence of various epithelial subtypes, including absorptive and secretory lineages, as well as mesenchymal and neural cells. The system was validated by comparing its cell-type composition and functionalities to those of human intestinal tissue, showing a high correlation. The study also explored the differentiation trajectories and processes driving lineage induction, identifying putative driver genes for key intestinal epithelial lineages. Furthermore, the system was tested for its ability to respond to inflammatory stimuli, such as type I and type II interferons (IFNs), revealing selective sensitivity of different cell types. Overall, the hiPSC-derived intestine-on-chip system provides a valuable tool for studying physiological processes and personalized therapy development in the human small intestine, offering a more physiological and sustainable model compared to traditional organoids.This study describes the development of a human induced pluripotent stem cell (hiPSC)-derived small intestine-on-chip system that mimics the physiological microenvironment of the human small intestine. The system uses organ-on-chip technology to create a more physiological *in vitro* environment, allowing access to both the apical and basolateral sides of the intestinal epithelial barrier. By locally exposing cells to expansion and differentiation media, the researchers replicated growth factor gradients along the crypt–villus axis, which induced the self-organization of intestinal epithelial cells into villus-like folds with physiological barrier integrity. Additionally, myofibroblast and neural subtypes emerged and formed a layer in the bottom channel underneath the epithelial tissue. The growth factor gradients efficiently balanced dividing and mature cell types, resulting in an intestinal epithelial composition that resembles the human adult small intestine. Single-cell RNA-sequencing (scRNAseq) analysis confirmed the presence of various epithelial subtypes, including absorptive and secretory lineages, as well as mesenchymal and neural cells. The system was validated by comparing its cell-type composition and functionalities to those of human intestinal tissue, showing a high correlation. The study also explored the differentiation trajectories and processes driving lineage induction, identifying putative driver genes for key intestinal epithelial lineages. Furthermore, the system was tested for its ability to respond to inflammatory stimuli, such as type I and type II interferons (IFNs), revealing selective sensitivity of different cell types. Overall, the hiPSC-derived intestine-on-chip system provides a valuable tool for studying physiological processes and personalized therapy development in the human small intestine, offering a more physiological and sustainable model compared to traditional organoids.