Severe acute liver failure, even when transient, must be treated by transplantation and lifelong immune suppression. Treatment could be improved by bioartificial liver (BAL) support, but this approach is hindered by a shortage of human hepatocytes. To generate an alternative source of cells for BAL support, we differentiated mouse embryonic stem (ES) cells into hepatocytes by coculture with a combination of human liver nonparenchymal cell lines and fibroblast growth factor-2, human activin-A and hepatocyte growth factor. Functional hepatocytes were isolated using albumin promoter-based cell sorting. ES cell-derived hepatocytes expressed liver-specific genes, secreted albumin and metabolized ammonia, lidocaine and diazepam. Treatment of 90% hepatectomized mice with a subcutaneously implanted BAL seeded with ES cell-derived hepatocytes or primary hepatocytes improved liver function and prolonged survival, whereas treatment with a BAL seeded with control cells did not. After functioning in the BAL, ES cell-derived hepatocytes developed characteristics nearly identical to those of primary hepatocytes.