Epithelial cells in embryonic day (ED) 12.5 murine fetal liver were separated from hematopoietic cell populations using fluorescence-activated cell sorting (FACS) and were characterized by immunocytochemistry using a broad set of antibodies specific for epithelial cells (alpha-fetoprotein [AFP], albumin [ALB], pancytokeratin [PanCK], Liv2, E-cadherin, Dlk), hematopoietic/endothelial cells (Ter119, CD45, CD31), and stem/progenitor cells (c-Kit, CD34, Sca-1). AFP(+)/ALB(+) cells represented approximately 2.5% of total cells and were positive for the epithelial-specific surface markers Liv2, E-cadherin, and Dlk, but were clearly separated and distinct from hematopoietic cells (Ter119(+)/CD45(+)). Fetal liver epithelial cells (AFP(+)/E-cadherin(+)) were Sca-1(+) but showed no expression of hematopoietic stem cell markers c-Kit and CD34. These cells were enriched by FACS sorting for E-cadherin to a purity of 95% as defined by co-expression of AFP and PanCK. Purified fetal liver epithelial cells formed clusters in cell culture and differentiated along the hepatocytic lineage in the presence of dexamethasone, expressing glucose-6-phosphatase (G6P) and tyrosine amino transferase. Wild-type ED12.5 murine fetal liver cells were transplanted into adult dipeptidyl peptidase IV knockout mice and differentiated into mature hepatocytes expressing ALB, G6P, and glycogen, indicating normal biochemical function. Transplanted cells became fully incorporated into the hepatic parenchymal cords and showed up to 80% liver repopulation at 2 to 6 months after cell transplantation. In conclusion, we isolated and highly purified a population of epithelial cells from the ED12.5 mouse fetal liver that are clearly separate from hematopoietic cells and differentiate into mature, functional hepatocytes in vivo with the capacity for efficient liver repopulation. Supplementary material for this article can be found on the HEPATOLOGY website (http://www.interscience.wiley.com/jpages/0270-9139/suppmat/index.html).