Hhex is required for early development of the liver. A null mutation of Hhex results in a failure to form the liver bud and embryonic lethality. Therefore, Hhex null mice are not informative as to whether this gene is required during later stages of hepatobiliary morphogenesis. To address this question, we derived Hhex conditional null mice using the Cre-loxP system and two different Cre transgenics (Foxa3-Cre and Alfp-Cre). Deletion of Hhex in the hepatic diverticulum (Foxa3-Cre;Hhex(d2,3/-)) led to embryonic lethality and resulted in a small and cystic liver with loss of Hnf4alpha and Hnf6 expression in early hepatoblasts. In addition, the gall bladder was absent and the extrahepatic bile duct could not be identified. Loss of Hhex in the embryonic liver (Alfp-Cre;Hhex(d2,3/-)) caused irregular development of intrahepatic bile ducts and an absence of Hnf1beta in many (cystic) biliary epithelial cells, which resulted in a slow, progressive form of polycystic liver disease in adult mice. Thus, we have shown that Hhex is required during multiple stages of hepatobiliary development. The altered expression of Hnf4alpha, Hnf6 and Hnf1beta in Hhex conditional null mice suggests that Hhex is an essential component of the genetic networks regulating hepatoblast differentiation and intrahepatic bile duct morphogenesis.