There is increasing evidence that the physical environment is a critical mediator of tumor behavior. Hepatocellular carcinoma (HCC) develops within an altered biomechanical environment, and increasing matrix stiffness is a strong predictor of HCC development. The aim of this study was to establish whether changes in matrix stiffness, which are characteristic of inflammation and fibrosis, regulate HCC cell proliferation and chemotherapeutic response. Using an in vitro system of “mechanically tunable” matrix‐coated polyacrylamide gels, matrix stiffness was modeled across a pathophysiologically relevant range, corresponding to values encountered in normal and fibrotic livers. Increasing matrix stiffness was found to promote HCC cell proliferation. The proliferative index (assessed by Ki67 staining) of Huh7 and HepG2 cells was 2.7‐fold and 12.2‐fold higher, respectively, when the cells were cultured on stiff (12 kPa) versus soft (1 kPa) supports. This was associated with stiffness‐dependent regulation of basal and hepatocyte growth factor–stimulated mitogenic signaling through extracellular signal‐regulated kinase, protein kinase B (PKB/Akt), and signal transducer and activator of transcription 3. β1‐Integrin and focal adhesion kinase were found to modulate stiffness‐dependent HCC cell proliferation. Following treatment with cisplatin, we observed reduced apoptosis in HCC cells cultured on stiff versus soft (physiological) supports. Interestingly, however, surviving cells from soft supports had significantly higher clonogenic capacity than surviving cells from a stiff microenvironment. This was associated with enhanced expression of cancer stem cell markers, including clusters of differentiation 44 (CD44), CD133, c‐kit, cysteine‐X‐cysteine receptor 4, octamer‐4 (CXCR4), and NANOG. Conclusion: Increasing matrix stiffness promotes proliferation and chemotherapeutic resistance, whereas a soft environment induces reversible cellular dormancy and stem cell characteristics in HCC. This has implications for both the treatment of primary HCC and the prevention of tumor outgrowth from disseminated tumor cells. (HEPATOLOGY 2011;)