The Hippo pathway regulates the self-renewal and differentiation of various adult stem cells, but its role in cell fate determination and differentiation during liver development remains unclear. Here we report that the Hippo pathway controls liver cell lineage specification and proliferation separately from Notch signalling, using mice and primary hepatoblasts with liver-specific knockout of Lats1 and Lats2 kinase, the direct upstream regulators of YAP and TAZ. During and after liver development, the activation of YAP/TAZ induced by loss of Lats1/2 forces hepatoblasts or hepatocytes to commit to the biliary epithelial cell (BEC) lineage. It increases BEC and fibroblast proliferation by up-regulating TGFβ signalling, but suppresses hepatoblast to hepatocyte differentiation by repressing Hnf4α expression. Notably, oncogenic YAP/TAZ activation in hepatocytes induces massive p53-dependent cell senescence/death. Together, our results reveal that YAP/TAZ activity levels govern liver cell differentiation and proliferation in a context-dependent manner.