Human umbilical cord blood (UCB) cells have many advantages as grafts for cell transplantation because of the immaturity of newborn cells compared with adult cells. In contrast to their hematopoietic and mesenchymal potential, it remains unclear whether UCB cells have endodermal competence. Here, with a view to utilize UCB cells for cell transplantation into injured liver, we investigated the hepatic potential of UCB cells both in vitro and in vivo. We determined the most efficient conditions leading UCB cells to produce albumin (ALB). In a novel primary culture system supplemented with a combination of growth/differentiation factors, about 50% of UCB cells in 21-day cultures expressed ALB, and the ALB(+) cells coexpressed hepatocyte lineage markers. The ALB-expressing cells were able to proliferate in the culture system. Moreover, in the cell-transplantation model into liver-injured severe combined immunodeficient mice, inoculated UCB cells developed into functional hepatocytes in the liver, which released human ALB into the sera of the recipient mice. In conclusion, this study demonstrates that human UCB is a source of transplantable hepatic progenitor cells. Our findings may have relevance to clinical application of UCB-derived cell transplantation as a novel therapeutic option for liver failure.