Primary hepatocytes cultured in vitro are a powerful tool to study the functions of hepatocytes and to evaluate the metabolism and toxicity of new drugs. However, in vitro culture of hepatocytes has proven to be very difficult. Ordinary culture conditions lead to dedifferentiation of hepatocytes, resulting in rapid change in cell morphology and significant reduction in specific cell functions. In the current study, we show that hepatocyte dedifferentiation is a rapid process under 21% O2 conditions. Hepatocytes cultured in 21% O2 undergo epithelial-to-mesenchymal transition (EMT), obtain fibroblast-like morphology, and show decreased hepatic functions. In contrast, 5% O2 is very effective in maintaining the epithelial morphology and many functions of the primary hepatocytes cultured in vitro for up to five days. These functions include albumin production, glycogen storage, LDL-uptake and CYP450-mediated drug metabolism. Furthermore, we find that 5% O2 can relieve the production of reactive oxygen species (ROS) and decrease the level of DNA damage in primary cultured hepatocytes. In addition, we also show that blocking the ERK and GSK-3β pathways can inhibit the dedifferentiation of hepatocytes to a certain extent. Lowering the oxygen tension in cell culture is easily achievable, we believe it could be combined with other methods, such as the use of small molecule cocktails and 3D culture, to maintain proliferation and functions of primary hepatocytes in vitro.