Several studies have indicated that adult stem cells derived from bone marrow (BM) and cord blood (CB) can differentiate into hepatocyte-like cells. This ability is important for the treatment of hepatic diseases with BM or CB as a potential approach. However, methods are still being developed for the efficient induction of stem cell differentiation and expansion to get enough cells to be useful. In the present study, we enriched a subset of umbilical cord blood β2mc-Met+ cells (UCBCCs) and investigated the combination effect of liver nonparenchymal cells (cirrhotic fat-storing cells [CFSCs]) and hepatocyte growth factor (HGF) on the induction of UCBCCs into hepatocyte-like cells. UCBCCs were cocultured with CFSC/HGF feeder layers either directly or separately using insert wells. Flow cytometric analysis showed that most UCBCCs were CD34+/−CD90+/−CD49f+CD29+Alb+AFP+. After cocultured with transgenic feeder layers for 7 days, UCBCCs displayed some morphologic characteristics of hepatocytes. Reverse-transcription polymerase chain reaction (RT-PCR) and immunofluorescence cell staining proved that the induced UCBCCs expressed several hepatocyte specific genes including AFP, Alb, CYP1B1 and cytokeratins CK18 and CK19. Furthermore, the induced cells displayed liver specific functions of indocyanine green (ICG) uptake, ammonium metabolism and albumin secretion. Hence, our data have demonstrated that UCBCCs might represent a novel subpopulation of CB-derived stem/progenitor cells capable of successful differentiation into hepatocyte-like cells when incubated with CFSC/HGF cells. In conclusion, not only HGF but also CFSCs and/or the secreted extracellular matrix (ECM) have been shown to be able to serve as essential microenvironment for hepatocyte differentiation. (Liver Transpl 2005;11:635–643.)