Abstract In previous studies, progenitor embryoid body-derived (EBD) cells have been derived from human embryonic germ cells. These cells express lineage markers of three primary germ layers, although their potential to produce true fetal cells of various types has yet to be tested. To this end, we have transplanted EBD cells into the fetal sheep liver. We show that these cells respond appropriately to environmental cues and give rise to hepatocytes and well-structured bile ducts. These results suggest that EBD cells are relatively uncommitted early progenitors capable of effective incorporation and differentiation in vivo. The ability to generate functional liver cells makes EBD cells potentially useful for cell therapy.