We have established a serum- and feeder-free culture system for the efficient differentiation of multifunctional hepatocytes from human embryonic stem (ES) cells and three entirely different induced pluripotent stem (iPS) cells (including vector/transgene-free iPS cells generated using Sendai virus vector) without cell sorting and gene manipulation. The differentiation-inducing protocol consisted of a first stage; endoderm induction, second stage; hepatic initiation, and third stage; hepatic maturation. At the end of differentiation culture, hepatocytes induced from human pluripotent stem cells expressed hepatocyte-specific proteins, such as α-fetoprotein, albumin, α1 antitrypsin and cytochrome P450 (CYP3A4), at similar or higher levels compared with three control human hepatocyte or hepatic cell lines. These human iPS/ES cell-derived hepatocytes also showed mature hepatocyte functions: indocyanine green dye uptake (≈ 30%), storage of glycogen (>80%) and metabolic activity of CYP3A4. Furthermore, they produced a highly sensitive hepatotoxicity assay system for D-galactosamine as determined by the extracellular release of hepatocyte-specific enzymes. Hepatoprotective prostaglandin E1 attenuated this toxicity. Interestingly, bile duct-specific enzymes were also detected after drug treatment, suggesting the presence of bile-duct epithelial cells (cholangiocytes) in our culture system. Electron microscopic studies confirmed the existence of cholangiocytes, and an immunostaining study proved the presence of bipotential hepatoblasts with high potential for proliferation. Differentiated cells were transferrable onto new dishes, on which small-sized proliferating cells with hepatocyte markers emerged and expanded. Thus, our differentiation culture system provides mature functional hepatocytes, cholangiocytes, and their progenitors with proliferative potential from a wide variety of human pluripotent stem cells.