Primary human hepatocytes are a scarce resource with variable function which diminishes with time in culture. As a consequence their use in tissue modelling and therapy is restricted. Human embryonic stem cells (hESC) could provide a stable source of human tissue due to their properties of self-renewal and their ability to give rise to all three germ layers. hESCs have the potential to provide an unlimited supply of hepatic endoderm (HE) which could offer efficient tools for drug discovery, disease modelling and therapeutic applications. There has been a major focus on developing protocols to derive functional HE from hESCs. This review focuses on human liver biology and the translation of observations of in vivo systems into developing differentiation protocols to yield hepatic endoderm. It also details the potential role of oxygen tension as a new regulatory mechanism in HE differentiation and points out the importance of the mitochondrial function analysis in defining successful HE generation.