In the past 40 years, liver transplantation has evolved from a high-risk procedure to one that offers high success rates for reversal of liver dysfunction and excellent patient and graft survival. The liver is the most tolerogenic of transplanted organs; indeed, immunosuppressive therapy can be completely withdrawn without rejection of the graft in carefully selected, stable long-term liver recipients. However, in other recipients, chronic allograft injury, late graft failure and the adverse effects of anti-rejection therapy remain important obstacles to improved success. The liver has a unique composition of parenchymal and immune cells that regulate innate and adaptive immunity and that can promote antigen-specific tolerance. Although the mechanisms underlying liver transplant tolerance are not well understood, important insights have been gained into how the local microenvironment, hepatic immune cells and specific molecular pathways can promote donor-specific tolerance. These insights provide a basis for the identification of potential clinical biomarkers that might correlate with tolerance or rejection and for the development of novel therapeutic targets. Innovative approaches aimed at promoting immunosuppressive drug minimization or withdrawal include the adoptive transfer of donor-derived or recipient-derived regulatory immune cells to promote liver transplant tolerance. In this Review, we summarize and discuss these developments and their implications for liver transplantation.