The liver is well known to possess high regenerative capacity in response to partial resection or tissue injury. However, liver regeneration is often impaired in the case of advanced liver fibrosis/cirrhosis when mature hepatocytes can hardly self‐proliferate. Hepatic progenitor cells have been implicated as a source of hepatocytes in regeneration of the fibrotic liver. Although alpha‐fetoprotein (AFP) is known as a clinical marker of progenitor cell induction in injured/fibrotic adult liver, the origin and features of such AFP‐producing cells are not fully understood. Here, we demonstrate a unique and distinct AFP‐expressing cell population that is induced by the Jagged1/Notch2 signal in murine fibrotic liver. Following repeated carbon tetrachloride injections, a significant number of AFP‐positive cells with high proliferative ability were observed along the fibrous septa depending on the extent of liver fibrosis. These AFP‐positive cells exhibited features of immature hepatocytes that were stained positively for hepatocyte‐lineage markers, such as albumin and hepatocyte nuclear factor 4 alpha, and a stem/progenitor cell marker Sox9. A combination of immunohistological examination of fibrotic liver tissues and coculture experiments with primary hepatocytes and hepatic stellate cells indicated that increased Jagged1 expression in activated hepatic stellate cells stimulated Notch2 signaling and up‐regulated AFP expression in adjacent hepatocytes. The mobilization and proliferation of AFP‐positive cells in fibrotic liver were further enhanced after partial hepatectomy, which was significantly suppressed in Jagged1‐conditional knockout mice. Finally, forced expression of the intracellular domain of Notch2 in normal liver induced a small number of AFP‐expressing hepatocytes in vivo. Conclusion: Insight is provided into a novel pathophysiological role of Jagged1/Notch2 signaling in the induction of AFP‐positive cells in fibrotic liver through the interaction between hepatocytes and activated hepatic stellate cells. (Hepatology Communications 2017;1:215‐229)