Transdifferentiation is defined as the conversion of one cell type to another. One well-documented example of transdifferentiation is the conversion of pancreatic cells to hepatocytes. Here we describe a robust in vitro model to study pancreas to liver transdifferentiation. It is based on the addition of the synthetic glucocorticoid dexamethasone to the rat pancreatic exocrine cell line AR42J. Following glucocorticoid treatment, cells resembling hepatocytes are induced. Transdifferentiated hepatocytes express many of the properties of bona fide hepatocytes, e.g. production of albumin and ability to respond to xenobiotics. These hepatocytes can be used for studying liver function in vitro as well as studying the molecular basis of transdifferentiation.