We established an efficient system for differentiation, expansion and isolation of hepatic progenitor cells from mouse embryonic stem (ES) cells and evaluated their capacity to repopulate injured liver. Using mouse ES cells transfected with the green fluorescent protein (GFP) reporter gene regulated by albumin (ALB) enhancer/promoter, we found that a serum-free chemically defined medium supports formation of embryoid bodies (EBs) and differentiation of hepatic lineage cells in the absence of exogenous growth factors or feeder cell layers. The first GFP ؉ cells expressing ALB were detected in close proximity to "beating" myocytes after 7 days of EB cultures. GFP ؉ cells increased in number, acquired hepatocyte-like morphology and hepatocytespecific markers (i.e., ALB, AAT, TO, and G6P), and by 28 days represented more than 30% of cells isolated from EB outgrowths. The FACS-purified GFP ؉ cells developed into functional hepatocytes without evidence of cell fusion and participated in the repairing of diseased liver when transplanted into MUP-uPA/SCID mice. The ES cell-derived hepatocytes were responsive to normal growth regulation and proliferated at the same rate as the host hepatocytes after an additional growth stimulus from CCl 4 -induced liver injury. The transplanted GFP ؉ cells also differentiated into biliary epithelial cells. In conclusion, a highly enriched population of committed hepatocyte precursors can be generated from ES cells in vitro for effective cell replacement therapy. Supplementary material for this article can be found on the HEPATOLOGY website H epatocyte transplantation is an effective treatment for liver failure and/or end-stage liver disease. However, the shortage of donor organs and the difficulties of cyropreservation and long-term culturing of mature hepatocytes have limited the clinical application of cell-based therapy. Recently, the use of embryonic stem (ES) cells has attracted considerable interest for cell replacement therapy because of their capacity to proliferate indefinitely in vitro while retaining the potential to differentiate into all types of cells including hepatocytes. [1][2][3][4][5] Clinical application of ES cells requires a simple and efficient protocol for directing their differentiation into a specific cell type. Several studies have reported the induction of ES cell differentiation into hepatocytes both in vitro 6-9 and in vivo. 10 The in vitro approaches involve the formation of embryoid bodies (EBs) to re-create the inductive microenvironment required for liver organogenesis 11,12 or treatment with specific growth factors and cytokines critical for hepatocyte differentiation such as hepatocyte growth factor, fibroblast growth factor, and oncostatin. 1,13 Also, the introduction of genes promoting endodermal differentiation into ES cells, 14 modification of culture microenvironment by supplementation with extracellular matrix proteins or coculture with other cell types, 15,16 is used to direct ES cells toward a hepatocytic lineage. Nevertheless, these strategie...