Panaxydol, a polyacetylene compound isolated from Panax ginseng, exerts anti-proliferative effects against malignant cells. No previous study, however, has been reported on its effects on hepatocellular carcinoma cells. Here, we investigated the effects of panaxydol on the proliferation and differentiation of human hepatocarcinoma cell line HepG2. We studied by electronic microscopy of morphological and ultrastructural changes induced by panaxydol. We also examined the cytotoxicities of panaxydol against HepG2 cells using the 3-(4,5-dimethyl-2-thiazolyl)-2,5-diphenyl tetrazolium bromide assay and the effect of panaxydol on cell cycle distributions by flow cytometry. We investigated the production of liver proteins in panaxydol-treated cells including alpha-fetoprotein and albumin and measured the specific activity of alkaline phosphatase and gamma-glutamyl transferase. We further investigated the effects of panaxydol on the expression of Id-1, Id-2, p21 and pRb by RT-PCR or immunoblotting analysis. We found that panaxydol inhibited the proliferation of HepG2 cells and caused morphological and ultrastructural changes in HepG2 cells resembling more mature forms of hepatocytes. Moreover, panaxydol induced a cell cycle arrest at the G(1) to S transition in HepG2 cells. It also significantly decreased the secretion of alpha-fetoprotein and the activity of gamma-glutamyl transferase. By contrast, panaxydol remarkably increased the secretion of albumin and the alkaline phosphatase activity. Furthermore, panaxydol increased the mRNA content of p21 while reducing that of Id-1 and Id-2. Panaxydol also increased the protein levels of p21, pRb and the hypophosphorylated pRb in a dose-dependent manner. These findings suggest that panaxydol is of value for further exploration as a potential anti-cancer agent.