Liver disease is a leading cause of death in the Western world. However, our insight into the underlying disease mechanisms and the development of novel therapeutic agents has been hindered by limited availability of primary tissue, intraspecies variability associated with the use of animal models, and reduced long-term viability of isolated and diseased liver cells. The emergence of human induced pluripotent stem cells and differentiation protocols to generate hepatocyte-like cells has opened the possibility of addressing these issues. Here, we discuss the recent progress and potential in the production of various cell types constituting the liver and their applications to model liver diseases and test drug toxicity in vitro.