We examined the effects of co-cultivated hepatocytes on the hepatospecific differentiation of murine embryonic stem (ES) cells. Utilizing an established mouse ES cell line expressing high or low levels of E-cadherin, that we have previously shown to be responsive to hepatotrophic growth factor stimulation (Dasgupta et al., 2005. Biotechnol Bioeng 92(3):257-266), we compared co-cultures of cadherin-expressing ES (CE-ES) cells with cultured rat hepatocytes, allowing for either paracrine interactions (indirect co-cultures) or both juxtacrine and paracrine interactions (direct co-cultures, random and patterned). Hepatospecific differentiation of ES cells was evaluated in terms of hepatic-like cuboidal morphology, heightened gene expression of late maturation marker, glucose-6-phosphatase in relation to early marker, alpha-fetoprotein (AFP), and the intracellular localization of albumin. Hepatocytes co-cultured with growth factor primed CE-ES cells markedly enhanced ES cell differentiation toward the hepatic lineage, an effect that was reversed through E-cadherin blockage and inhibited in control ES cells with reduced cadherin expression. Comparison of single ES cell cultures versus co-cultures show that direct contact co-cultures of hepatocytes and CE-ES cells maximally promoted ES cell commitment towards hepatodifferentiation, suggesting cooperative effects of cadherin-based juxtacrine and paracrine interactions. In contrast, E-cadherin deficient mouse ES (CD-ES) cells co-cultured with hepatocytes failed to show increased G6P expression, confirming the role of E-cadherin expression. To establish whether albumin expression in CE-ES cells was spatially regulated by co-cultured hepatocytes, we co-cultivated CE-ES cells around micropatterned, pre-differentiated rat hepatocytes. Albumin localization was enhanced "globally" within CE-ES cell colonies and was inhibited through E-cadherin antibody blockage in all but an interfacial band of ES cells. Thus, stem cell based cadherin presentation may be an effective tool to induce hepatotrophic differentiation by leveraging both distal/paracrine and contact/juxtacrine interactions with primary cells of the liver.