Ex vivo embryonic liver explant culture is a novel and attractive approach to obtain abundant hepatic and hematopoietic stem cells. Gene therapy of autologous hepatic and hematopoietic stem cells represents an alternative therapeutic approach to liver transplantation for genetic and metabolic disorders. In this study we characterize the growth and differentiation of hepatic stem cells utilizing embryonic liver cultures. Day 9.5 liver buds are microdissected and cultured under specific conditions. Modulation of growth conditions by addition of hepatocyte growth factor, Flt-3 ligand, and stem cell factor leads to enrichment of hepatic progenitor cells in embryonic liver explants. Under these conditions, we also demonstrate the role of a novel marker PRAJA-1 to identify hepatic stem cells and transitional hepatocytes. Utilization of dexamethasone enhanced pseudolobule formation with increased hepatocytic and biliary differentiation. Transforming growth factor-beta leads to enrichment of biliary cells in the culture. Gut formation is enhanced in the presence of interleukin-3 and blood formation by increasing the mesodermal tissue in these cultures. We also show increased retroviral-mediated expression of the green fluorescent protein expression in the expanded hepatic and hematopoietic stem cells under different culture conditions. Thus, the embryonic liver explant culture is an attractive source for hepatic progenitors and is a possible step towards generating nontumorigenic immortalized hepatocytes with possible transplantation applications.