We determined whether extrahepatic biliary epithelial cells can differentiate into cells with phenotypic features of hepatocytes. Gallbladders were removed from transgenic mice expressing hepatocyte-specific -galactosidase (-gal) and cultured under standard conditions and under experimental conditions designed to induce differentiation into a hepatocyte-like phenotype. GBEC cultured under standard conditions exhibited no -gal activity. When cultured under experimental conditions, 50% of cells had prominent -gal expression. Similar morphologic changes were observed when GBEC from GFP mice were cultured under experimental conditions. These cells showed higher levels of mRNA for genes expressed in hepatocytes but not in GBEC, including aldolase B, albumin, HNF4, aldehyde dehydrogenase 1, and glutamine synthetase; and they synthesized bile acids. Additional functional evidence of a hepatocyte-like phenotype included LDL uptake and enhanced benzodiazepine metabolism. Connexin-32 expression was evident in mouse hepatocytes and in cells cultured under experimental conditions, but not in cells cultured under standard conditions. Notch 1, 2 and 3 and the Notch ligand Jagged 1 mRNA were down-regulated in these cells compared to cells cultured under standard conditions. CD34, -fetoprotein and Sca-1 mRNA were not expressed in cells cultured under standard conditions, suggesting that the hepatocyte-like cells did not arise from hematopoietic stem cells or oval cells. These results point to future avenues for investigation into the potential use of GBEC in the treatment of liver disease.