Hepatocellular carcinoma (HCC) is a malignant tumor associated with a generally poor prognosis and a high rate of recurrence. HCC usually develops in the context of chronic liver diseases, and long-lasting premalignant conditions precede cancer development. A promising therapeutic approach is to eliminate precancerous cells, which are considered as the precursors of cancer stem cells, to prevent further malignant transformation. In this study, we identified a subpopulation of precancerous cells in a rat liver carcinogenesis model, which were enriched in CD133(+)CD44(+)CD45(-)HIS49(-) cells that formed part of the hepatic oval cells fraction. Prospective isolation of the precancerous cells using flow cytometry identified stem cell properties such as the ability to expand clonally and differentiate into bi-lineage cell types. Furthermore, an acyclic retinoid, which was recently shown to improve overall survival after HCC resection, directly inhibited the extensive expansion of the isolated precancerous cells in vitro and decreased the emergence of the precancerous cells and their progeny in vivo. Long-term follow-up after the acyclic retinoid treatment confirmed reduction in precancerous changes, ultimately resulting in suppression of HCC development. These findings, together with data from recent clinical trials showing marked reduction in intrahepatic recurrence, suggest that acyclic retinoid directly prevents de novo HCC by inhibiting the development of precancerous cells. Given recent advances in diagnostic techniques and the establishment of surveillance programs, the targeting of precancerous cells may have a huge impact on preventative cancer therapies.