Murine embryonic stem (ES) cells can replicate indefinitely in culture and can give rise to all tissues, including the germline, when reimplanted into a murine blastocyst. ES cells can also be differentiated in vitro into a wide range of cell types. We have utilized a liver-specific marker to demonstrate that murine ES cells can differentiate into hepatocytes in vitro. We have used ES cells carrying a gene trap vector insertion (I.114) into an ankyrin repeat-containing gene (Gtar) that we have previously shown provides an exclusive beta-galactosidase marker for the early differentiation of hepatocytes in vivo. beta-Galactosidase-positive cells were differentiated from I.114 ES cells in vitro. The identity of these cells was confirmed by the expression of the proteins alpha-fetoprotein, albumin, and transferrin and by the fact that they have an ultrastructural appearance consistent with that of embryonic hepatocytes. We propose that this model system of hepatic differentiation in vitro could be used to define factors that are involved in specification of the hepatocyte lineage. In addition, human ES cells have recently been derived and it has been proposed that they may provide a source of differentiated cell types for cell replacement therapies in the treatment of a variety of diseases.