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Background & Aims There are few in vitro models for studying the 3-dimensional interactions among different liver cell types during organogenesis or disease development. We aimed to generate hepatic organoids that comprise different parenchymal liver cell types and have structural features of the liver, using human pluripotent stem cells. Methods We cultured H1 human embryonic stem cells (WA-01, passage 27-40) and induced pluripotent stem cells (GM23338) with a series of chemically defined and serum-free media to induce formation of posterior foregut cells, which were differentiated in 3 dimensions into hepatic endoderm spheroids and stepwise into hepatoblast spheroids. Hepatoblast spheroids were reseeded in a high-throughput format and induced to form hepatic organoids; development of functional bile canaliculi was imaged live. Levels of albumin and apolipoprotein B were measured in cell culture supernatants using an enzyme-linked immunosorbent assay. Levels of gamma glutamyl transferase and alkaline phosphatase were measured in cholangiocytes. Organoids were incubated with troglitazone for varying periods and bile transport and accumulation were visualized by live-imaging microscopy. Organoids were incubated with oleic and palmitic acid, and formation of lipid droplets was visualized by staining. We compared gene expression profiles of organoids incubated with free fatty acids or without. We also compared gene expression profiles between liver tissue samples from patients with nonalcoholic steatohepatitis (NASH) versus without. We quantified hepatocyte and cholangiocyte populations in organoids using immunostaining and flow cytometry; cholangiocyte proliferation of cholangiocytes was measured. We compared the bile canaliculi network in the organoids incubated with versus without free fatty acids by live imaging. Results Cells in organoids differentiated into hepatocytes and cholangiocytes, based on the expression of albumin and cytokeratin 7. Hepatocytes were functional, based on secretion of albumin and apolipoprotein B and cytochrome P450 activity; cholangiocytes were functional, based on gamma glutamyl transferase and alkaline phosphatase activity and proliferative responses to secretin. The organoids organized a functional bile canaliculi system, which was disrupted by cholestasis-inducing drugs such as troglitazone. Organoids incubated with free fatty acids had gene expression signatures similar to those of liver tissues from patients with NASH. Incubation of organoids with free fatty acid–enriched media resulted in structural changes associated with nonalcoholic fatty liver disease, such as decay of bile canaliculi network and ductular reactions. Conclusions We developed a hepatic organoid platform with human cells that can be used to model complex liver diseases, including NASH.