An important advantage of employing extracellular matrix (ECM)-derived biomaterials in tissue engineering is the ability to tailor the biochemical and biophysical microenvironment of the cells. This study aims to assess whether three-dimensional (3D) liver-derived ECM hydrogel (LEMgel) promotes physiological function of liver organoids generated by self-organization of human hepatocarcinoma cells together with human mesenchymal and endothelial cells. We have optimized the decellularization method to fabricate liver ECM derived from sheep to preserve the greatest content of glycosaminoglycans, collagen, laminin, and fibronectin in produced LEMgel. During gelation, complex viscoelasticity modulus of the LEMgel (3 mg/mL) increased from 186.7 to 1570.5 Pa and Tan Delta decreased from 0.27 to 0.18. Scanning electron microscopy (SEM) determined that the LEMgel had a pore size of 382 ± 71 µm. Hepatocarcinoma cells in the self-organized liver organoids in 3D LEMgel (LEMgel organoids) showed an epithelial phenotype and expressed ALB, CYP3A4, E-cadherin, and ASGPR. The LEMgel organoid had significant upregulation of transcripts of ALB, CYP3A4, CYP3A7, and TAT as well as downregulation of AFP compared to collagen type I- and hydrogel-free-organoids or organoids in solubilized LEM and 2D culture of hepatocarcinoma cells. Generated 3D LEMgel organoids had significantly more ALB and AAT secretion, urea production, CYP3A4 enzyme activity, and inducibility. In conclusion, 3D LEMgel enhanced the functional activity of self-organized liver organoids compared to traditional 2D, 3D, and collagen gel cultures. Our novel 3D LEMgel organoid could potentially be used in liver tissue engineering, drug discovery, toxicology studies, or bio-artificial liver fabrication.