Transforming growth factor-beta cooperates with oncogenic Ras to activate nuclear beta-catenin during the epithelial to mesenchymal transition of hepatocytes, a process relevant in the progression of hepatocellular carcinoma (HCC). In this study we investigated the role of beta-catenin in the differentiation of murine, oncogene-targeted hepatocytes and in 133 human HCC patients scheduled for orthotopic liver transplantation. Transforming growth factor-beta caused dissociation of plasma membrane E-cadherin/beta-catenin complexes and accumulation of nuclear beta-catenin in Ras-transformed, but otherwise normal hepatocytes in p19(ARF)-/- mice. Both processes were inhibited by Smad7-mediated disruption of transforming growth factor-beta signaling. Overexpression of constitutively active beta-catenin resulted in high levels of CK19 and M2-PK, whereas ablation of beta-catenin by axin overexpression caused strong expression of CK8 and CK18. Therefore, nuclear beta-catenin resulted in dedifferentiation of neoplastic hepatocytes to immature progenitor cells, whereas loss of nuclear beta-catenin led to a differentiated HCC phenotype. Poorly differentiated human HCC showed cytoplasmic redistribution or even loss of E-cadherin, suggesting epithelial to mesenchymal transition. Analysis of 133 HCC patient samples revealed that 58.6% of human HCC exhibited strong nuclear beta-catenin accumulation, which correlated with clinical features such as vascular invasion and recurrence of disease after orthotopic liver transplantation. These data suggest that activation of beta-catenin signaling causes dedifferentiation to malignant, immature hepatocyte progenitors and facilitates recurrence of human HCC after orthotopic liver transplantation.