The liver develops from progenitor cells into a well-differentiated organ in which bile secretion can be observed by 12 weeks' gestation. Full maturity takes up to two years after birth to be achieved, and involves the normal expression of signalling pathways such as that responsible for the JAG1 genes (aberrations occur in Alagille's syndrome), amino acid transport and insulin growth factors. At birth, hepatocytes are already specialized and have two surfaces: the sinusoidal side receives and absorbs a mixture of oxygenated blood and nutrients from the portal vein; the other surface delivers bile and other products of conjugation and metabolism (including drugs) to the canalicular network which joins up to the bile ductules. There is a rapid induction of functions such as transamination, glutamyl transferase, synthesis of coagulation factors, bile production and transport as soon as the umbilical supply is interrupted. Anatomical specialization can be observed across the hepatic acinus which has three distinct zones. Zone 1 borders the portal tracts (also known as periportal hepatocytes) and is noted for hepatocyte regeneration, bile duct proliferation and gluconeogenesis. Zone 3 borders the central vein and is associated with detoxification (e.g. paracetamol), aerobic metabolism, glycolysis and hydrolysis and zone 2 is an area of mixed function between the two zones. Preterm infants are at special risk of hepatic decompensation because their immaturity results in a delay in achieving normal detoxifying and synthetic function. Hypoxia and sepsis are also frequent and serious causes of liver dysfunction in neonates. Stem cell research has produced many answers to the questions about liver development and regeneration, and genetic studies including studies of susceptibility genes may yield further insights. The possibility that fatty liver (increasingly recognized as non-alcoholic steatohepatitis or NASH) may have roots in the neonatal period is a concept which may have important long-term implications.