Hepatic transdifferentiation of bone marrow cells has been previously demonstrated by intravenous administration of donor cells, which may recirculate to the liver after undergoing proliferation and differentiation in the recipient's bone marrow. In the present study, to elucidate which cellular components of human bone marrow more potently differentiate into hepatocytes, we fractionated human bone marrow cells into mesenchymal stem cells (MSCs), CD34⁺ cells, and non-MSCs/CD34^- cells and examined them by directly xenografting to allylalcohol (AA)-treated rat liver. Hepatocyte-like cells, as revealed by positive immunostaining for human-specific alpha-fetoprotein (AFP), albumin (Alb), cytokeratin 19 (CK19), cytokeratin 18 (CK18), and asialoglycoprotein receptor (AGPR), and by reverse transcription-polymerase chain reaction (RT-PCR) for expression of AFP and Alb mRNA, were observed only in recipient livers with MSC fractions. Cell fusion was not likely involved since both human and rat chromosomes were independently identified by fluorescence in situ hybridization (FISH). The differentiation appeared to follow the process of hepatic ontogeny, reprogramming of gene expression in the genome of MSCs, as evidenced by expression of the AFP gene at an early stage and the albumin gene at a later stage. In conclusion, we have demonstrated that MSCs are the most potent component in hepatic differentiation, as revealed by directly xenografting into rat livers. (Blood. 2005;106:756-763)