Although the T-box family of transcription factors function in many different tissues, their role in liver development is unknown. Here we show that Tbx3, the T-box gene that is mutated in human ulnar-mammary syndrome, is specifically expressed in multipotent hepatic progenitor cells,`hepatoblasts', isolated from the developing mouse liver. Tbx3-deficient hepatoblasts presented severe defects in proliferation as well as uncontrollable hepatobiliary lineage segregation, including the promotion of cholangiocyte (biliary epithelial cell) differentiation, which thereby caused abnormal liver development. Deletion of Tbx3 resulted in the increased expression of the tumor suppressor p19ARF(Cdkn2a), which in turn induced a growth arrest in hepatoblasts and activated a program of cholangiocyte differentiation. Thus, Tbx3 plays a crucial role in controlling hepatoblast proliferation and cell-fate determination by suppressing p19ARF expression and thereby promoting liver organogenesis.