We propose that the liver is a stem cell and lineage system with many parallels to lineages in the bone marrow, gut, and epidermis, varying from them only in kinetics. All are organized with three compartments: a slow cycling stem cell compartment with cells expressing a fetal phenotype and responding slowly to injury; an amplification compartment with cells of intermediate phenotype rapidly proliferating in response to regenerative stimuli or acute injuries; and a terminal differentiation compartment in which cells increasingly differentiate and gradually lose their ability to divide. In all systems, both those with slow or rapid kinetics, the various compartments are positioned in a polarized organization, are associated with a gradient in the chemistry of the extracellular matrix, and show lineage-position-dependent growth responses, gene expression, pharmacological and toxicological responses, and reaction to viruses and radiation. In general, known oncogens selectively kill cells in the differentiation compartment inducing chronic regenerative responses of the cells in stem cell and/or amplification compartment. Tumors arise by subsequent transformation of the activated stem cells or early precursor cells. The evidence for a lineage model consists of the data implicating gradients in cell size, ploidy, growth potential, and antigenic and gene expression in the liver parenchyma along the sinusoidal plates. The traditional explanation for this heterogeneity is that it represents adaption of cells to a changing sinusoidal microenvironment dictated by the direction of blood flow. However, we review the extant data and suggest that it more readily supports a lineage model involving a maturation process beginning with stem cells and precursors in the periportal zone and ending with sensescing parenchyma near the central vein. Support for this theory is provided by the studies on phenotypic heterogeneity in liver, investigations into the embryology of the liver, and analyses of the responses of liver to chemical and viral oncogens that induce rapid proliferation of small cells with oval-shaped nuclei, "oval cells," now thought to be closely related to liver stem cells. The lineage model provides clarity and insights into many aspects of liver biology and disease including the limited proliferative ability of in vitro parenchymal cultures, liver regeneration, gene expression, viral infection, hepatocellular carcinogenesis, liver cell transplantation, and aging.