Bile duct morphogenesis involves sequential induction of biliary specific gene expression, bilayer generation, cell proliferation, remodeling and apoptosis. HBC-3 cells are a model system to study differentiation of hepatoblasts along the hepatocytic or bile ductular lineage in vitro and in vivo. We used microarray to define molecular pathways during ductular differentiation in response to Matrigel. The temporal pattern of expression of marker genes induced was similar to that observed during bile duct formation in vivo. Notch, HNF1β, Polycystic kidney disease 2, Bicaudal C 1 and β-catenin were up regulated during the time course. Functional clustering analysis revealed significant up regulation of clusters of genes involved in extracellular matrix remodeling, ion transport, vacuoles, lytic vacuoles, pro-apoptotic and anti-apoptotic genes, transcription factors and negative regulators of the cell proliferation, while genes involved in the cell cycle were significantly down regulated. Notch signaling pathway was activated by treatment with Matrigel. In addition, TGFβ/BMP signaling pathway members including the type I TGFβ receptor and Smads 3, 4 and 5 were significantly up regulated, as were several TGFβ/BMP responsive genes including Hey 1, a regulator of Notch pathway signaling. SMADS 3, 4 and 5 were present in the nuclear fraction of HBC-3 cells during ductular differentiation in vitro, but not during hepatocyte differentiation. SMAD 5 was preferentially expressed in hepatoblasts undergoing bile duct morphogenesis in the fetal liver, while the TGFβ/BMP signaling antagonist chordin, was expressed throughout the liver suggesting a mechanism by which TGFβ/BMP signaling is limited to hepatoblasts that contact portal mesenchyme in vivo.