OBJECTIVE In patients with biliary atresia who had undergone a Kasai operation, treatment of intrahepatic biliary cysts (IBCs), particularly when complicated by cholangitis, is often difficult because the clinical implications and the course of IBCs are unclear. Thus, to determine the best treatment guideline, the morphology of IBCs, the clinical course, and the outcomes of such patients were evaluated. METHODS A total of 44 patients with type III biliary atresia who underwent a Kasai operation from 1977 to 2005 were postoperatively examined for IBC by using ultrasonography and computed tomography. We classified the IBCs based on their number and shape. RESULTS Intrahepatic biliary cysts developed in 12 of 54 patients. Three patients with solitary simple cysts and 1 patient with multiple simple cysts had no history of cholangitis. Two patients with multiple simple cysts had cholangitis at the time of IBC diagnosis and were treated with percutaneous transhepatic cholangiodrainage (PTCD). Patients with simple IBCs did not develop persistent cholangitis and their prognosis depended largely on their liver function; 3 of 6 patients remained healthy without cholangitis, whereas 3 patients required liver transplantation (LT) because of progressive liver failure or worsening hepatopulmonary syndrome, and not severe cholangitis. On the other hand, all 6 patients with multiple complicated IBCs had persistent cholangitis, eventually requiring LT. Even after bile flow to the intestine was reestablished after PTCD, both IBCs and cholangitis recurred. These patients required LT because of severe cholangitis. CONCLUSIONS Intrahepatic biliary cysts without cholangitis are not a source of infection and require no treatment. Simple IBCs with cholangitis can be controlled by antibiotics and/or PTCD. Patients with multiple complicated IBCs have a poor prognosis, requiring LT to control cholangitis. Although PTCD can control cholangitis in these patients as they wait for LT, PTCD does not alleviate it--LT is the final solution.