Hepatic encephalopathy (HE) is a serious neuropsychiatric complication of both acute and chronic liver disease. Several hypotheses have emerged following the development of appropriate animal models of HE and following studies using postmortem brain tissue from HE patients. It was originally suggested that primary energy failure was responsible for HE; however, there is now mounting evidence that the pathogenetic defect involves neurotransmission failure. Specific neurotransmitter systems implicated in the pathogenesis of portal-systemic encephalopathy (PSE) include the excitatory amino acid glutamate as well as neuroactive and/or neurotoxic biogenic amine metabolites. Although it has been proposed that alterations in the gamma-aminobutyric acid (GABA) system may play a pathogenic role in HE associated with both chronic and acute liver failure, there is now overwhelming evidence to the contrary. On the other hand, there is evidence to suggest that a subgroup of patients with HE have increased blood and CSF concentrations of substances that bind to GABA-related benzodiazepine receptors in brain. Alterations of both the glutamatergic and serotoninergic neurotransmitter systems in PSE likely result from the metabolic consequences of chronic exposure of brain to toxic levels of ammonia. In addition to its effects on glutamatergic and serotoninergic systems during chronic liver disease, ammonia has been intimately associated with the brain edema invariably observed in acute liver failure. It is evident that, regardless of the type of liver failure, effective reductions of ammonia levels remains the strategy of choice in the prevention of encephalopathy. The further elucidation of neurotransmitter alterations in HE could result in novel "downstream" neuropharmacologic approaches to its prevention and treatment.