Fetal liver, the major site of hematopoiesis during embryonic development, acquires additional various metabolic functions near birth. Although liver development has been characterized biologically as consisting of several distinct steps, the molecular events accompanying this process are just beginning to be characterized. In this study, we have established a novel culture system of fetal murine hepatocytes and investigated factors required for development of hepatocytes. We found that oncostatin M (OSM), an interleukin‐6 family cytokine, in combination with glucocorticoid, induced maturation of hepatocytes as evidenced by morphological changes that closely resemble more differentiated hepatocytes, expression of hepatic differentiation markers and intracellular glycogen accumulation. Consistent with these in vitro observations, livers from mice deficient for gp130, an OSM receptor subunit, display defects in maturation of hepatocytes. Interestingly, OSM is expressed in CD45+ hematopoietic cells in the developing liver, whereas the OSM receptor is expressed predominantly in hepatocytes. These results suggest a paracrine mechanism of hepatogenesis; blood cells, transiently expanding in the fetal liver, produce OSM to promote development of hepatocytes in vivo.