We have used monoclonal antibodies against cell-surface developmental epitopes in combination with micromagnetic beads to isolate phenotypically defined subpopulations of cholangiocyte marker-positive fetal liver epithelial cells (CMP-FLEC). Differentiation potential was evaluated by injecting cell isolates from dipeptidyl peptidase IV (DPPIV) positive (DPPIV+) Fischer donor rats into the spleen of partially hepatectomized, DPPIV negative (DPPIV-) Fischer host rats exposed to retrorsine. At various time points, liver tissue was harvested and cells in DPPIV+ colonies were phenotyped by immunofluorescence and histochemical protocols. Functional differentiation and liver replacement were determined by comparing donor and host hepatocyte protein expression patterns and DPPIV enzyme activity in extracts from livers of host rats receiving CMP-FLEC. Our results showed that bipotentiality was retained during differentiation and maturation of CMP-FLEC, indicating that the acquisition of ductal morphology and phenotype were not indicative of lineage commitment. CMP-FLEC transplanted into the adult rat liver lost ductal and gained hepatocyte markers, and acquired protein expression patterns in 2D gels with a close similarity (>75% spot match) to host hepatocytes but differing significantly from the transplanted CMP-FLEC cell isolate (<25% spot match). The average size of donor hepatocyte colonies increased with time so that by 1 year, up to 70% of the host rat liver was replaced by CMP-FLEC derived DPPIV+ hepatocytes. Depletion of CMP-FLEC from fetal liver isolates resulted in a marked decrease in adult liver colonization, suggesting that a high percentage of the hepatocyte colonies in animals receiving total fetal liver isolates are derived from CMP-FLEC.