When differentiated in the presence of activin A in serum-free conditions, mouse embryonic stem cells efficiently generate an endoderm progenitor population defined by the coexpression of either Brachyury, Foxa2 and c-Kit, or c-Kit and Cxcr4. Specification of these progenitors with bone morphogenetic protein-4 in combination with basic fibroblast growth factor and activin A results in the development of hepatic populations highly enriched (45–70%) for cells that express the α-fetoprotein and albumin proteins. These cells also express transcripts of Afp, Alb1, Tat, Cps1, Cyp7a1 and Cyp3a11; they secrete albumin, store glycogen, show ultrastructural characteristics of mature hepatocytes, and are able to integrate into and proliferate in injured livers in vivo and mature into hepatocytes expressing dipeptidyl peptidase IV or fumarylacetoacetate hydrolase. Together, these findings establish a developmental pathway in embryonic stem cell differentiation cultures that leads to efficient generation of cells with an immature hepatocytic phenotype.