Human embryonic stem cells (hES cells) are pluripotent and provide a unique, unlimited resource for human hepatocytes, which can serve as a novel cell source for cell transplantation and bioartificial liver (BAL). Here, we have developed a procedure by which hES cells can differentiate into hepatocyte-like cells. After being cultured in suspension in bacteriological petri dishes for 7 d, hES cells developed into cystic embryoid bodies (EBs). The EBs were then cultured in conditional medium containing dexamethasone and insulin in collagen type I-coated tissue culture dishes for two weeks. The hES cell-derived hepatocyte-like cells (HLCs) displayed some morphologic characteristics of hepatocytes. Reverse-transcription polymerase chain reaction (RT-PCR) and immunofluorescence cell staining proved that the induced HLCs expressed several hepatocyte specific genes including AFP, ALB, CYP1B1 and cytokeratins CK18 and CK19. Furthermore, the induced cells executed a range of hepatocyte functions, such as ICG uptake/excretion, glycogen deposits, albumin production and ammonium metabolism. Taken together, our results show that HLCs exhibit similar morphologic, phenotypic, and functional characteristics to hepatocytes.