Hepatic differentiation from mouse embryonic stem (ES) cells via the formation of embryoid bodies (EBs) has been revealed by the expression of hepatocyte-related genes such as α-fetoprotein and albumin. It is known, however, that the visceral endoderm differentiates in early EBs and expresses these hepatocyte-related genes. Thus, it remains unclear whether ES cells are capable of differentiating into hepatocytes derived from definitive endoderm in vitro. In the present study, yolk sac tissues isolated from the foetal mouse were found to express many hepatocyte-related genes. Among the hepatocyte-related genes examined, cytochrome P450 7A1 (Cyp7a1) was identified as a liver-specific gene that was not expressed in the yolk sac. Cyp7a1 was induced in developing EBs, and hepatic differentiation was preferentially observed in the developing EBs in attached culture as compared to those in suspension culture. Leukaemia inhibitory factor permitted the differentiation of visceral endoderm, but inhibited the expression of gastrulation-related genes and the hepatic differentiation in cultured EBs. ES cells expressing green fluorescent protein (GFP) under the control of the Cyp7a1 enhancer/promoter showed that cultured EBs contained GFP-positive epithelial-like cells. These results demonstrate that ES cells can differentiate in vitro into hepatocytes derived from definitive endoderm.