Bipotential hepatoblasts differentiate into hepatocytes and cholangiocytes during liver development. It is believed that hepatoblasts originate from endodermal tissue. Here, we provide evidence for the presence of hepatic progenitor cells in the hematopoietic compartment at an early stage of liver development. Flow cytometric analysis showed that at early stages of liver development, approximately 13% of CD45(+) cells express Delta-like protein-1, a marker of hepatoblasts. Furthermore, reverse transcriptase-PCR data suggest that many hepatic genes are expressed in these cells. Cell culture experiments confirmed the hepatic differentiation potential of these cells with the loss of the CD45 marker. We observed that both hematopoietic activity in Delta-like protein-1(+) cells and hepatic activity in CD45(+) cells were high at embryonic day 10.5 and declined thereafter. Clonal analysis revealed that the hematopoietic fraction of fetal liver cells at embryonic day 10.5 gave rise to both hepatic and hematopoietic colonies. The above results suggest a common source of these two functionally distinct cell lineages. In utero transplantation experiments confirmed these results, as green fluorescent protein-expressing CD45(+) cells at the same stage of development yielded functional hepatocytes and hematopoietic reconstitution. Since these cells were unable to differentiate into cytokeratin-19-expressing cholangiocytes, we distinguished them from hepatoblasts. This preliminary study provides hope to correct many liver diseases during prenatal development via transplantation of fetal liver hematopoietic cells.