Liver cirrhosis is a predominant risk factor for hepatocellular carcinoma (HCC). However, the mechanism underlying the progression from cirrhosis to HCC remains unclear. Herein we report the concurrent increase of liver progenitor cells (LPCs) and transforming growth factor‐β (TGF‐β) in diethylnitrosamine (DEN)‐induced rat hepatocarcinogenesis and cirrhotic livers of HCC patients. Using several experimental approaches, including 2‐acetylaminofluorene/partial hepatectomy (2‐AAF/PHx) and 3,5‐diethoxycarbonyl‐1,4‐dihydrocollidine (DDC)‐elicited murine liver regeneration, we found that activation of LPCs in the absence of TGF‐β induction was insufficient to trigger hepatocarcinogenesis. Moreover, a small fraction of LPCs was detected to coexpress tumor initiating cell (T‐IC) markers during rat hepatocarcinogenesis and in human HCCs, and TGF‐β levels were positively correlated with T‐IC marker expression, which indicates a role of TGF‐β in T‐IC generation. Rat pluripotent LPC‐like WB‐F344 cells were exposed to low doses of TGF‐β for 18 weeks imitating the enhanced TGF‐β expression in cirrhotic liver. Interestingly, long‐term treatment of TGF‐β on WB‐F344 cells impaired their LPC potential but granted them T‐IC properties including expression of T‐IC markers, increased self‐renewal capacity, stronger chemoresistance, and tumorigenicity in NOD‐SCID mice. Hyperactivation of Akt but not Notch, signal transducer and activator of transcription 3 (STAT3), or mammalian target of rapamycin (mTOR) was detected in TGF‐β‐treated WB‐F344 cells. Introduction of the dominant‐negative mutant of Akt significantly attenuated T‐IC properties of those transformed WB‐F344 cells, indicating Akt was required in TGF‐β‐mediated‐generation of hepatic T‐ICs. We further demonstrate that TGF‐β‐induced Akt activation and LPC transformation was mediated by microRNA‐216a‐modulated phosphatase and tensin homolog deleted on chromosome 10 (PTEN) suppression. Conclusion: Hepatoma‐initiating cells may derive from hepatic progenitor cells exposed to chronic and constant TGF‐β stimulation in cirrhotic liver, and pharmaceutical inhibition of microRNA‐216a/PTEN/Akt signaling could be a novel strategy for HCC prevention and therapy targeting hepatic T‐ICs. (HEPATOLOGY 2012;56:2255–2267)