Potential therapeutic applications of embryonic stem cell (ESC)-derived hepatocytes are limited by their relatively low output in differentiating ESC cultures, as well as by the danger of contamination with tumorigenic undifferentiated ESCs. To address these problems, we developed transgenic murine ESC clones possessing bicistronic expression vector that contains the alpha-fetoprotein gene promoter driving a cassette for the enhanced green "live" fluorescent reporter protein (eGFP) and a puromycin resistance gene. Under established culture conditions these clones allowed for both monitoring of differentiation and for puromycin selection of hepatocyte-committed cells in a suspension mass culture of transgenic ESC aggregates ("embryoid bodies" [EBs]). When plated on fibronectin, the selected eGFP-positive cells formed colonies, in which intensely proliferating hepatocyte precursor-like cells gave rise to morphologically differentiated cells expressing alpha-1-antitrypsin, alpha-fetoprotein, and albumin. A number of cells synthesized glycogen and in some of the cells cytokeratin 18 microfilaments were detected. Major hepatocyte marker genes were expressed in the culture, along with the gene and protein expression of stem/progenitor markers, suggesting the features of both hepatocyte precursors and more advanced differentiated cells. When cultured in suspension, the EB-derived puromycin-selected cells formed spheroids capable of outgrowing on an adhesive substrate, resembling the behavior of fetal mouse hepatic progenitor cells. The established system based on the highly efficient selection/purification procedure could be suitable for scalable generation of ESC-derived hepatocyte- and hepatocyte precursor-like cells and offers a potential in vitro source of cells for transplantation therapy of liver diseases, tissue engineering, and drug and toxicology screening.