Use of human hepatocytes for therapeutic and drug discovery applications is hampered by limited tissue source and the inability of hepatocytes to proliferate and maintain function long term in vitro. Human embryonic stem (hES) cells are immortal and pluripotent and may provide a cell source for functional human hepatocytes. We report here that hES cells can be induced to differentiate into hepatocyte-like cells. Treatment with sodium butyrate induced hepatic differentiation as well as significant cell death, resulting in approximately 10-15% yield of a homogeneous population of cells. The differentiated cells have morphological features similar to that of primary hepatocytes and 70-80% of the cells express liver-associated proteins (albumin, alpha-1-antitrypsin, cytokeratin 8 and 18), accumulate glycogen, have inducible cytochrome P450 activity, and do not express alpha-fetoprotein. Because of the inherent proliferative capacity of hES cells, these cells may provide a reliable source of normal human hepatocytes for research and transplantation.