Hepatic encephalopathy (HE) is a neuropsychiatric disorder that occurs in both acute and chronic liver failure. Although the precise pathophysiologic mechanisms responsible for HE are not completely understood, a deficit in neurotransmission rather than a primary deficit in cerebral energy metabolism appears to be involved. The neural cell most vulnerable to liver failure is the astrocyte. In acute liver failure, the astrocyte undergoes swelling resulting in increased intracranial pressure; in chronic liver failure, the astrocyte undergoes characteristic changes known as Alzheimer type II astrocytosis. In portal-systemic encephalopathy resulting from chronic liver failure, astrocytes manifest altered expression of several key proteins and enzymes including monoamine oxidase B, glutamine synthetase, and the so-called peripheral-type benzodiazepine receptors. In addition, expression of some neuronal proteins such as monoamine oxidase A and neuronal nitric oxide synthase are modified. In acute liver failure, expression of the astrocytic glutamate transporter GLT-1 is reduced, leading to increased extracellular concentrations of glutamate. Many of these changes have been attributed to a toxic effect of ammonia and/or manganese, two substances that are normally removed by the hepatobiliary route and that in liver failure accumulate in the brain. Manganese deposition in the globus pallidus in chronic liver failure results in signal hyperintensity on T1-weighted Magnetic Resonance Imaging and may be responsible for the extrapyramidal symptoms characteristic of portal-systemic encephalopathy. Other neurotransmitter systems implicated in the pathogenesis of hepatic encephalopathy include the serotonin system, where a synaptic deficit has been suggested, as well as the catecholaminergic and opioid systems. Further elucidation of the precise nature of these alterations could result in the design of novel pharmacotherapies for the prevention and treatment of hepatic encephalopathy.