Immortalized hepatocyte cell lines show only a weak resemblance to primary hepatocytes in terms of gene expression and function, limiting their value in predicting drug-induced liver injury (DILI). Furthermore, primary hepatocytes cultured on two-dimensional tissue culture plastic surfaces rapidly dedifferentiate losing their hepatocyte functions and metabolic competence. We have developed a three-dimensional in vitro model using extracellular matrix-based hydrogel for long-term culture of the human hepatoma cell line HepG2. HepG2 cells cultured in this model stop proliferating, self-organize and differentiate to form multiple polarized spheroids. These spheroids re-acquire lost hepatocyte functions such as storage of glycogen, transport of bile salts and the formation of structures resembling bile canaliculi. HepG2 spheroids also show increased expression of albumin, urea, xenobiotic transcription factors, phase I and II drug metabolism enzymes and transporters. Consistent with this, cytochrome P450-mediated metabolism is significantly higher in HepG2 spheroids compared to monolayer cultures. This highly differentiated phenotype can be maintained in 384-well microtiter plates for at least 28 days. Toxicity assessment studies with this model showed an increased sensitivity in identifying hepatotoxic compounds with repeated dosing regimens. This simple and robust high-throughput-compatible methodology may have potential for use in toxicity screening assays and mechanistic studies and may represent an alternative to animal models for studying DILI.