Background: Understanding the pathways regulating mesenchymal progenitor cell fate during hepatogenesis may provide insight into postnatal liver injury or liver bioengineering. While β-Catenin has been implicated in the proliferation of fetal hepatic epithelial progenitor cells, its role in mesenchymal precursors during hepatogenesis has not been established. Materials and Methods: We used a murine model of conditional deletion of β-Catenin in mesenchyme using the Dermo1 locus (β-CateninDermo1) to characterize the role of β-Catenin in liver mesenchyme during hepatogenesis. Results: Lineage tracing using a LacZ reporter indicates that both hepatic stellate cells and pericytes derive from mesenchymal Dermo1 expressing precursor cells. Compared to control littermate livers, β-CateninDermo1 embryonic livers are smaller and filled with dilated sinusoids. While the fraction of mesenchymally-derived cells in β-CateninDermo1 embryos is unchanged compared to littermate controls, there is an increase in the expression of the mesenchymal markers, DESMIN, α-SMA, and extracellular deposition of COLLAGEN type I, particularly concentrated around dilated sinusoids. Analysis of the endothelial cell compartment in β-CateninDermo1/Flk1lacZ embryos revealed a marked reorganization of the intrahepatic vasculature. Analysis of various markers for the endodermally-derived hepatoblast population revealed marked alterations in the spatial expression pattern of pan-cytokeratin but not E-cadherin, or albumin. β-CateninDermo1 phenocopies mesenchymal deletion of Pitx2, a known regulator of hepatic mesenchymal differentiation both during both organogenesis and postnatal injury. Conclusions: Our data implicate mesenchymal β-Catenin signaling pathway in the differentiation of liver mesenchymal progenitor cells during organogenesis, possibly via Pitx2. Hepatic mesenchymal β-Catenin signaling, in turn, modulates the development of both endothelium and endodermally-derived hepatoblasts, presumably via other downstream paracrine pathways. © 2010 Elsevier Inc. All rights reserved.