In cirrhosis of liver, hepatic encephalopathy (HE) has an important impact on health-related quality of life. It is important to define whether HE is episodic, recurrent, or persistent; types A, B, or C; overt HE or covert HE; and spontaneous or precipitated. The overt HE is clinically evident and needs hospitalization. Nonabsorbable disaccharides, rifaximin, and probiotics are proven to be useful in the treatment of overt HE. Covert HE includes both minimal HE and grade I HE. It is not apparent on routine clinical examination. Presence of poor work productivity, increased accidental injuries on complex machinery and driving, etc., raise the suspicion of cognitive dysfunction. Specialized neurocognitive testing like psychometric HE, computerized tests like critical flicker frequency tests, inhibitory control tests, Stroop encephalopathy tests, and electroencephalography are needed to diagnose overt HE. Various studies have shown lactulose and rifaximin to be useful in overt HE. However, presence of persistent and recurrent HE in cirrhosis is an indication for liver transplant. Lactulose is effective both in improving reversal of minimal HE and in reducing the risk of development of overt HE.