The study of liver development has significantly contributed to developmental concepts about morphogenesis and differentiation of other organs. Knowledge of the mechanisms that regulate hepatic epithelial cell differentiation has been essential in creating efficient cell culture protocols for programmed differentiation of stem cells to hepatocytes as well as developing cell transplantation therapies. Such knowledge also provides a basis for the understanding of human congenital diseases. Importantly, much of our understanding of organ development has arisen from analyses of patients with liver deficiencies. We review how the liver develops in the embryo and discuss the concepts that operate during this process. We focus on the mechanisms that control the differentiation and organization of the hepatocytes and cholangiocytes and refer to other reviews for the development of nonepithelial tissue in the liver. Much progress in the characterization of liver development has been the result of genetic studies of human diseases; gaining a better understanding of these mechanisms could lead to new therapeutic approaches for patients with liver disorders.