After specification of the hepatic endoderm, mammalian liver organogenesis progresses through a series of morphological stages that culminate in the migration of hepatocytes into the underlying mesenchyme to populate the hepatic lobes. Here, we show that in the mouse the transcriptional repressor Tbx3, a member of the T‐box protein family, is required for the transition from a hepatic diverticulum with a pseudo‐stratified epithelium to a cell‐emergent liver bud. In Tbx3‐deficient embryos, proliferation in the hepatic epithelium is severely reduced, hepatoblasts fail to delaminate, and cholangiocyte rather than hepatocyte differentiation occurs. Molecular analyses suggest that the primary function of Tbx3 is to maintain expression of hepatocyte transcription factors, including hepatic nuclear factor 4a (Hnf4a) and CCAAT/enhancer binding protein (C/EBP), alpha (Cebpa), and to repress expression of cholangiocyte transcription factors such as Onecut1 (Hnf6) and Hnf1b. Conclusion: Tbx3 controls liver bud expansion by suppressing cholangiocyte and favoring hepatocyte differentiation in the liver bud. (HEPATOLOGY 2009.)