Inherited syndromes of intrahepatic cholestasis and biliary atresia are the most common causes of chronic liver disease and the prime indication for liver transplantation in children. Our understanding of the pathogenesis of these diseases has increased substantially by the discovery of genetic mutations in children with intrahepatic cholestasis and the findings that inflammatory circuits are operative at the time of diagnosis of biliary atresia. Building on this solid foundation, recent studies provide new insight into genotype-phenotype relationships and how mutations produce altered bile composition and cholestasis. New evidence exists that although liver transplantation is curative for patients with end-stage liver disease owing to cholestasis, some patients may develop recurrence of cholestasis because of the emergence of autoantibodies that disrupt canalicular function in the new graft. Progress is also evident in biliary atresia, with recent studies identifying candidate modifier genes and directly implicating lymphocytes and inflammatory signals in the pathogenesis of bile duct injury and obstruction.