A novel method is described for marking primary hepatocytes with the fluorescent dye DiI prior to hepatocellular transplantation and identifying these cells within the hepatic parenchyma of recipient animals by fluorescence microscopy and flow cytometry. Optimal conditions are described for marking cells with DiI in suspension or in monolayer cultures prior to transplantation. DiI is shown to be nontoxic to hepatocytes and not to be exchanged between adjacent cells in vitro. Histological analysis of transplanted tissues shows DiI staining of engrafted hepatocytes and phagocytotic cells (Kupffer cells). This analysis shows that hepatocytes engraft within the hepatic parenchyma and exhibit a histological appearance indistinguishable from normal by conventional hematoxylin and eosin staining. Many previous reports of hepatocellular transplantation have been limited by their inability to unequivocally identify transplanted cells within the liver. These data illustrate the importance of having specific markers for transplanted cells that engraft in an orthotopic location and assume a normal morphological appearance.