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 beta-galactosidase (beta-Gal) and cultured under standard conditions and under experimental conditions designed to induce differentiation into a hepatocyte-like phenotype. Gallbladder epithelial cells (GBEC) cultured under standard conditions exhibited no beta-Gal activity. beta-Gal expression was prominent in 50% of cells cultured under experimental conditions. Similar morphological changes were observed in GBEC from green fluorescent protein transgenic mice cultured under experimental conditions. These cells showed higher levels of mRNA for genes expressed in hepatocytes, but not in GBEC, including aldolase B, albumin, hepatocyte nuclear factor-4alpha, 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 murine hepatocytes and in cells cultured under experimental conditions, but not in cells cultured under standard conditions. Notch 1, 2, and 3 and Notch ligand Jagged 1 mRNAs were downregulated in these cells compared with cells cultured under standard conditions. CD34, alpha-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.