MicroRNA‐122 (miR‐122) is a liver‐specific microRNA whose expression is specifically turned on in the mouse liver during embryogenesis, thus it is expected to be involved in liver development. However, the role of miR‐122 in liver development and its potential underlying mechanism remain unclear. Here, we show that the expression of miR‐122 is closely correlated with four liver‐enriched transcription factors (LETFs)—hepatocyte nuclear factor (HNF) 1α, HNF3β, HNF4α, and CCAAT/enhancer‐binding protein (C/EBP) α—in the livers of developing mouse embryos and in human hepatocellular carcinoma (HCC) cell lines. Correspondingly, promoter analysis revealed that these LETFs are coordinately involved in the transcriptional regulation of miR‐122, and three HNFs directly bind to the miR‐122 promoter as transcriptional activators. Using a luciferase reporter system, we identified a group of miR‐122 targets involved in proliferation and differentiation regulation. Among these targets, the most prominently repressed target was CUTL1, a transcriptional repressor of genes specifying terminal differentiation in multiple cell lineages, including hepatocytes. We show that CUTL1 expression is gradually silenced at the posttranscriptional level during mouse liver development. Overexpression and knockdown studies both showed that miR‐122 repressed CUTL1 protein expression in HCC cell lines. Finally, we show that the stable restoration of miR‐122 in HepG2 cells suppresses cellular proliferation and activates the expression of three hepatocyte functional genes, including the cholesterol‐7α hydroxylase gene (CYP7A1), a known target of CUTL1 in hepatocytes. Conclusion: Our study provides a model in which miR‐122 functions as an effector of LETFs and contributes to liver development by regulating the balance between proliferation and differentiation of hepatocytes, at least by targeting CUTL1. HEPATOLOGY 2010