The capacity of the liver-enriched transcription factor hepatocyte nuclear factor 4 (HNF4) to direct redifferentiation of dedifferentiated rat hepatoma cells was investigated by stable transfection of epitope-tagged HNF4 cDNA into H5 variant cells. HNF4-producing cells expressed the previously silent HNF1 gene and showed activation of some hepatic functions, including alpha1-antitrypsin, beta-fibrinogen, and transthyretin, but not of the endogenous HNF4 gene. Expression of the other hepatocyte-enriched transcription factors was not modified. Treatment of the HNF4tag-expressing cells with dexamethasone induced expression of the transgene by 10-fold, resulting in enhanced expression of target genes of both glucocorticoid hormones and HNF4. The set of activated hepatic genes was extended by treatment of cells with the demethylating agent 5-azacytidine followed by selection in dexamethasone-containing glucose-free medium. Some of the colonies that developed reexpressed the entire set of hepatic functions tested. Fusion of HNF4tag-producing H5 cells with well-differentiated Fao cells showed that only those hybrids which maintained expression of HNF4tag were protected from complete extinction, including that of the Fao HNF4 gene. Thus, H5 cells must produce an extinguisher of the HNF4 gene. In addition, this result implies that HNF4 itself, or its target HNF1, is a positive regulator of HNF4. In conclusion, HNF4tag expression overcomes repression of the hepatic phenotype of the H5 cell without abolishing its potential to extinguish an active genome. Taken together, these results predict that expression of HNF4 should be sufficient to establish heritable expression of many parameters of the hepatic differentiated state.