There is increasing evidence to suggest that embryonic stem cells (ESCs) are capable of differentiating into hepatocytes in vitro. In this study, we used a combination of cytokines and sodium butyrate in a novel three-step procedure to efficiently direct the differentiation of mouse ESCs into hepatocytes. Mouse ESCs were first differentiated into definitive endoderm cells by 3 days of treatment with Activin A. The definitive endoderm cells were then differentiated into hepatocytes by the addition of acidic fibroblast growth factor (aFGF) and sodium butyrate to the culture medium for 5 days. After 10 days of further in vitro maturation, the morphological and phenotypic markers of hepatocytes were characterized using immunohistochemistry, immunoblotting, and reverse transcription-polymerase chain reaction (RT-PCR). Furthermore, the cells were tested for functions associated with mature hepatocytes, including glycogen storage and indocyanine green uptake and release, and the ratio of hepatic differentiation was determined by counting the percentage of albumin-positive cells. In the presence of medium containing cytokines and sodium butyrate, numerous epithelial cells resembling hepatocytes were observed, and approximately 74% of the cells expressed the hepatic marker, albumin, after 18 days in culture. RT-PCR analysis and immunohistochemistry showed that these cells expressed adult liver cell markers, and had the abilities of glycogen storage and indocyanine green uptake and release. We have developed an efficient method for directing the differentiation of mouse ESCs into cells that exhibit the characteristics of mature hepatocytes. This technique will be useful for research into the molecular mechanisms underlying liver development, and could provide a source of hepatocytes for transplantation therapy and drug screening.