The liver is believed to contain stem cells that can differentiate into either hepatocytes or biliary epithelial cells. In the present study, we established a nonhepatocytic epithelial cell line from the normal livers of adult rats. The established cells, designated HSL cells, were immunoreactive against alpha-fetoprotein, but neither albumin nor cytokeratin 19. To demonstrate the differentiation potential of HSL cells in vitro, the cells were cocultured with hepatic stellate cells as a mixture or separately using insert wells. Consequently, although coculture with hepatic stellate cells rendered HSL cells able to produce albumin, the mixed coculture system mimicking the hepatic environment elicited this phenomenon more effectively than the separated coculture system. In conclusion, HSL cells have immature properties and the potential to differentiate into mature cells. Not only the extracellular matrices but also soluble factors, which are produced by hepatic stellate cells, induce this maturation, demonstrating the importance of the hepatic environment for hepatocyte differentiation. (C) 2002 Elsevier Science (USA). All rights reserved.