To establish an effective induction method for hepatic differentiation using serum-free media, the effects of activin in serum-containing and serum-free conditions on embryoid body (EB) induction into mesendoderm were investigated by Western blot analysis and real-time reverse transcription-polymerase chain reaction (RT-PCR) as a first step. The expression of P-smad2 and mesendodermal markers was markedly enhanced by 100ng/ml activin under serum-free conditions but were inhibited or masked under serum-containing conditions. Next, serum-free Lanford medium was used to attempt the direct induction of activin-treated EBs expressing mesendodermal markers into hepatic lineage cells and this induction was compared to that induced using Iscove's Modified Dulbecco's medium containing 20% fetal bovine serum. Once immersed in the Lanford medium, EBs began to show typical hepatic features by day 17, including Alb, AFP, TTR, and AAT expression detected by RT-PCR, and ALB, AFP, and CK18 expression detected by immunostaining. On day 22, these cells were of high quality characterized by the expression of metabolizing enzymes, including Ugt1a1, Slcola4, cyp3a11, cyp2b10, and cyp7a1 detected by real-time PCR, a 50-fold greater cyp3A11 response than control to 100muM dexamethasone stimulation, specific cellular uptake of indocyanine green, and glycogen storage in the cytoplasm. These results indicate that this simple two-step induction method under serum-free conditions induces hepatic lineage cells with high quality directly from mouse embryonic stem (ES) cell-derived mesendoderm.