Several stem cell sources have been studied extensively for their potential to differentiate into cells of the hepatic phenotype in the last years. However, most of the currently available data indicate that somatic cell types have a limited capacity to generate liver tissue in transplantation experiments. Embryonic stem (ES) cells can be maintained in a state of pluripotency for long periods of time, and can be grown in large numbers. Spontaneous differentiation of ES cells can be achieved through the formation of embryoid bodies (EB) and subsequent inoculation of the EB-derived cells on adherent matrices facilitates differentiation into hepatocyte-like cells in the presence of a variety of growth factors, cytokines and hormones, such as hepatocyte growth factor (HGF), fibroblast growth factor (FGF) and dexamethasone. Significant progress has been made in identifying factors and developing protocols to enforce the differentiation of ES cells into cells of the hepatocyte lineage. Hepatocyte formation derived from sorted ES-HPC has recently been demonstrated in fumaryl-acetoacetate-deficient (FAH-/-) and uroplasminogen-activator transgenic MUP-uPA/SCID mice, clearly indicating the potential for cellular therapies. The rate of hepatocyte and liver tissue formation, however, was much lower than that previously reported for transplanted primary adult hepatocytes or fetal hepatoblasts. The reduced efficacy of hepatocyte and liver tissue formation may have been due to lower primary engraftment rates of the ES-HPC into the recipient liver, incomplete differentiation, or a combination of both. Induced pluripotent stem (iPS) cells are the product of somatic cell reprogramming to an embryonic-like state. This occurs by the introduction of a defined and limited set of transcription factors and by culturing these cells under embryonic stem (ES)-cell conditions. The method was first described by Yamanaka using mouse fibroblasts, in which it was demonstrated that the retroviral-mediated introduction of four transcription factors — octamer-binding transcription factor-3/4, SRY-related high-mobility-group (HMG)-box protein-2, MYC and Kruppel-like factor-4 — could induce pluripotency. Both iPS cells and ES cells can be used as the pluripotent starting material for differentiated cells or tissues in regenerative medicine. There are several hurdles to be overcome before iPS cells can be considered as a potential patient-specific cell therapy, and it will be crucial to characterize the developmental potential of human iPS cell lines. As a research tool, iPS-cell technology provides opportunities to study normal development and to understand reprogramming. iPS cells can have an immediate impact as models for human diseases, including cancer.