Alagille syndrome (AGS, MIM 118450) is an autosomal dominant inherited disease. Paucity of interlobular bile ducts is one of the major abnormalities. To explore the molecular mechanism by which mutation in the human Jagged 1 gene (JAG1, MIM 601920) causes liver defects, we investigated the gene regulation of JAG1 to hepatocyte growth factor gene (HGF). By transfecting wild-type and mutant JAG1 into COS-7 cells in vitro, we found that HGF is a target gene of JAG1 downstream. Wild-type JAG1 is inhibitory for HGF expression and mutant JAG1s relieve the inhibition. Several domain disruptions in mutant JAG1 protein reveal a reduced inhibition to HGF expression at different levels. JAG1 mutations actually result in HGF overexpression. Furthermore, JAG1 controls HGF expression by a dosage-dependent regulation and Notch2 signaling seems to mediate JAG1 function. Given that HGF plays a critical role in differentiation of hepatic stem cells, overexpression of HGF acts on off-balanced cell fate determination in AGS patients. Hepatic stem cells may differentiate towards more hepatocytes but less biliary cells, thus causing the paucity of interlobular bile ducts in liver development of AGS. Our novel findings demonstrated that dosage-dependent regulation by mutations of JAG1 is a fundamental mechanism for liver abnormality in AGS.