Hepatic encephalopathy (HE) is a major complication for acute and chronic liver failure. Despite several decades of intensive clinical and basic research, the pathogenesis of HE is still incompletely understood, and the precise mechanisms causing brain dysfunction in liver failure are still not fully established. Several theories concerning the pathogenesis of HE have been previously suggested, including the ammonia theory, which received the most attention. These theories are not mutually exclusive and the validity of none of them has been definitely proved experimentally. In this review article, an attractive theory concerning the pathogenesis of HE, the tumour necrosis factor-α (TNF) theory, is presented and comprehensively discussed after accumulation of sufficient data which indicate that the pro-inflammatory cytokine, TNF, is strongly involved in the pathogenesis of HE associated with both acute and chronic liver failure. This theory seems to be superior to all other previous theories in the pathogenesis of HE, and may induce development of other beneficial therapeutical modalities for HE directed towards inhibition of TNF production and/or action, and towards enhancement of its degradation.