The expression of C/EBPalpha, which may govern transcription of mature hepatocyte marker genes, was suppressed in periportal hepatoblasts in mouse liver development, leading to biliary cell differentiation. This study was undertaken to analyze how inactivation of the Cebpa gene affects biliary cell differentiation and gene expression of the regulatory genes for that differentiation, including Hnf1b and Hnf6. In the knockout mouse liver at midgestation stages, pseudoglandular structures were abundantly induced in the parenchyma with elevated expression of Hnf6 and Hnf1b mRNAs. The wild-type liver parenchyma expressed mRNAs of these transcription factors at low levels, though periportal biliary progenitors had strong expression of them. These results suggest that expression of Hnf6 and Hnf1b is downstream of C/EBPalpha action in fetal liver development, and that the suppression of C/EBPalpha expression in periportal hepatoblasts may lead to expression of Hnf6 and Hnf1b mRNAs. Immunohistochemical studies with biliary cell markers in knockout livers demonstrated that differentiated biliary epithelial cells were confined to around the portal veins. The suppression of C/EBPalpha expression may result in upregulation of Hnf6 and Hnf1b gene expression, but be insufficient for biliary cell differentiation. When liver fragments of Cebpa-knockout fetuses, in which hepatoblasts were contained as an endodermal component, were transplanted in the testis of Scid (Prkdc) male mice, almost all hepatoblasts gave rise to biliary epithelial cells. Wild-type hepatoblasts constructed mature hepatic tissue accompanied by biliary cell differentiation. These results also demonstrate that the suppression of C/EBPalpha expression may stimulate biliary cell differentiation.