The liver is affected by many types of diseases, including metabolic disorders and acute liver failure. Orthotopic liver transplantation (OLT) is currently the only effective treatment for life-threatening liver diseases but transplantation of allogeneic hepatocytes has now become an alternative as it is less invasive than OLT and can be performed repeatedly. However, this approach is hampered by the shortage of organ donors, and the problems related to the isolation of high quality adult hepatocytes, their cryopreservation and their absence of proliferation in culture. Liver is also a key organ to assess the pharmacokinetics and toxicology of xenobiotics and for drug discovery, but appropriate cell culture systems are lacking. All these problems have highlighted the need to explore other sources of cells such as stem cells that could be isolated, expanded to yield sufficiently large populations and then induced to differentiate into functional hepatocytes. The presence of a niche of “facultative” progenitor and stem cells in the normal liver has recently been confirmed but they display no telomerase activity. The recent discovery that human induced pluripotent stem cells can be generated from somatic cells has renewed hopes for regenerative medicine and in vitro disease modelling, as these cells are easily accessible. We review here the present progresses, limits and challenges for the generation of functional hepatocytes from human pluripotent stem cells in view of their potential use in regenerative medicine and drug discovery.