Hepatocyte transplantation to treat liver disease is largely limited by the availability of useful cells. Human amniotic epithelial cells (hAECs) from term placenta express surface markers and gene characteristics of embryonic stem cells and have the ability to differentiate into all three germ layers, including tissues of endodermal origin (i.e., liver). Thus, hAECs could provide a source of stem cell-derived hepatocytes for transplantation. We investigated the differentiation of hAECs in vitro and after transplantation into the livers of severe combined immunodeficient (SCID)/beige mice. Moreover, we tested the ability of rat amniotic epithelial cells (rAECs) to replicate and differentiate upon transplantation into a syngenic model of liver repopulation. In vitro results indicate that the presence of extracellular matrix proteins together with a mixture of growth factors, cytokines, and hormones are required for differentiation of hAECs into hepatocyte-like cells. Differentiated hAECs expressed hepatocyte markers at levels comparable to those of fetal hepatocytes. They were able to metabolize ammonia, testosterone, and 17α-hydroxyprogesterone caproate, and expressed inducible fetal cytochromes. After transplantation into the liver of retrorsine (RS)-treated SCID/beige mice, naïve hAECs differentiated into hepatocyte-like cells that expressed mature liver genes such as cytochromes, plasma proteins, transporters, and other hepatic enzymes at levels equal to adult liver tissue. When transplanted in a syngenic animal pretreated with RS, rAECs were able to engraft and generate a progeny of cells with morphology and protein expression typical of mature hepatocytes. Conclusion: Amniotic epithelial cells possess the ability to differentiate into cells with characteristics of functional hepatocytes both in vitro and in vivo, thus representing a useful and noncontroversial source of cells for transplantation.