When hepatocyte regeneration is impaired, facultative stem cells and their descendants, also called oval cells, become activated and produce cell progeny that eventually differentiate. We have observed these cells in the rat liver after partial hepatectomy when the animals have been fed 2-acetylaminofluorene. Oval cells emerge from the portal areas and stain strongly with monoclonal antibodies raised against cytokeratins 8 and 19 and vimentin, the intermediate filament traditionally associated with mesenchymal cells. The majority of oval cells appeared to be part of a bile ductular reaction, manifest by their cytokeratin expression, and the bile duct injection of pigmented gelatin confirmed that these oval cells were essentially tortuous, arborizing duct-like structures (cholangioles) branched from and continuous with preexisting bile ducts. In situ hybridization studies showed that hepatocyte growth factor mRNA-expressing sinusoid lining cells were most numerous in the periportal areas during the period of ductular proliferation. At 1 week after partial hepatectomy, we observed morphological evidence of areas of in situ focal differentiation in the ductular structures, either to a columnar intestinal-type epithelia or to a hepatocyte phenotype, with abundant large mitochondria and membranous cytokeratin 8 immunoreactivity contrasting with the diffuse staining of the ductular cells. By following the fate of oval cells the authors conclude that in this model proliferated bile ductules represent the oval cell compartment capable of producing pluripotential progenitor cells.