Recent advances in induced pluripotent stem (iPS) cell research have attracted much attention. The ability to generate such cells from somatic cells has implications for overcoming both immunological rejection and the ethical issues associated with embryonic stem (ES) cells. Hepatocytes derived from patient-specific iPS cells offer a possible solution to the shortage of cell sources in cell replacement therapy, drug screening, and disease model. Despite such great promise, however, recent articles have questioned the viability of the therapeutic applications of iPS cells. These cells must, therefore, satisfy stringent criteria prior to practical use. The main focus of this review is a description of the current status of hepatic differentiation technology of iPS cells and a discussion of the concerns regarding the practical use of these techniques in cell replacement therapy, drug screening, and disease model. The current status of strategies for generating iPS cells and the accumulated knowledge on strategies for differentiating ES cells into hepatocytes will be summarized. We also refer to the possibility of direct conversion of adult somatic cells into functional hepatocytes.