The appearance of bipotential oval cells in chronic liver injury suggests the existence of hepatocyte progenitor/stem cells. To study the origin and properties of this cell population, oval cell proliferation was induced in adult mouse liver by 3,5-diethoxycarbonyl-1,4-dihydrocollidine (DDC) and a method for their isolation was developed. Transplantation into fumarylacetoacetate hydrolase (Fah) deficient mice was used to determine their capacity for liver repopulation. In competitive repopulation experiments, hepatic oval cells were at least as efficient as mature hepatocytes in repopulating the liver. In mice with chimeric livers, the oval cells were not derived from hepatocytes but from liver nonparenchymal cells. This finding supports a model in which intrahepatic progenitors differentiate into hepatocytes irreversibly. To determine whether oval cells originated from stem cells residing in the bone marrow, bone marrow transplanted wild-type mice were treated with DDC for 8 months and oval cells were then serially transferred into Fah mutants. The liver repopulating cells in these secondary transplant recipients lacked the genetic markers of the original bone marrow donor. We conclude that hepatic oval cells do not originate in bone marrow but in the liver itself, and that they have valuable properties for therapeutic liver repopulation.