Hepatocyte transplantation is considered a potential treatment for liver diseases and a bridge for patients awaiting liver transplantation, but its application has been hampered by a limited supply of hepatocytes. Embryonic stem (ES) cells established from early mouse and human embryos are pluripotent, and proliferate indefinitely in an undifferentiated state in vitro. Since differentiation from ES cells seems to recapitulate early embryonic development, if hepatocytes could be efficiently generated in vitro, ES cells might become a source of transplantable hepatocytes for cell replacement therapy. Hepatocytes have been generated from ES cells in vitro, and the hepatocytes differentiated from ES cells have been found to express many hepatocyte-related genes and perform hepatic functions. However, it remains unclear whether the hepatocytes differentiated from ES cells are derived from definitive endoderm or primitive endoderm. Because visceral endoderm, which expresses many hepatocyte-related genes, is derived from primitive endoderm and is fated to form extraembryonic yolk sac tissues, not to form hepatocytes, ES cells must be directed to a definitive endoderm lineage in vitro. This article discusses the differentiation of ES cells into hepatocytes in vitro in comparison with early embryogenesis, and describes the efficacy of ES cell-derived hepatocyte transplantation.