Ethnopharmacological Relevance. "Diwu Yanggan" (DWYG) has been reported to regulate liver regeneration, modulate the immune response, ameliorate liver injury, kill virus, ameliorate liver fibrosis, and suppress hepatic cancer. However, its mechanisms are still unknown. Objectives. To investigate the effects of DWYG on oval cell proliferation in 2-AAF/PH rats and determine its mechanism. Methods. Wistar rats were randomly distributed into normal group, sham group, vehicle group, and DWYG group. Hepatic pathological changes were examined by H&E staining. The oval cell markers CD34, AFP, CK-19 and hematopoietic cell markers CD45, Thy1.1, and hepatocyte marker ALB were examined with immunohistochemistry. The percentage of CD34/CD45 double-positive cells in bone marrow was detected by flow cytometry. Cytokine levels were measured with the Bio-plex suspension array system. Results. DWYG significantly increased the survival rates of 2-AAF/PH rats and promoted liver regeneration. Furthermore, DWYG increased the ratio of CD34/CD45 double-positive cells on days 10 and 14. In addition, DWYG gradually restored IL-1, GRO/KC, and VEGF levels to those of the normal group. Conclusions. DWYG increases 2-AAF/PH rat survival rates, suppresses hepatic precarcinoma changes, and restores hepatic tissue structure and function. DWYG may act by modulating the hepatic microenvironment to support liver regeneration.