There exists a worldwide shortage of donor livers available for orthotropic liver transplantation and hepatocyte transplantation therapies. In addition to their therapeutic potential, primary human hepatocytes facilitate the study of molecular and genetic aspects of human hepatic disease and development and provide a platform for drug toxicity screens and identification of novel pharmaceuticals with potential to treat a wide array of metabolic diseases. The demand for human hepatocytes, therefore, heavily outweighs their availability. As an alternative to using donor livers as a source of primary hepatocytes, we explored the possibility of generating patient‐specific human hepatocytes from induced pluripotent stem (iPS) cells. Conclusion: We demonstrate that mouse iPS cells retain full potential for fetal liver development and describe a procedure that facilitates the efficient generation of highly differentiated human hepatocyte‐like cells from iPS cells that display key liver functions and can integrate into the hepatic parenchyma in vivo. (HEPATOLOGY 2010.)