Background and aims <p>The generation of functionally mature hepatocytes from human induced pluripotent stem cells (iPSC) has the potential to replace primary human hepatocytes (PHH) as the gold standard in vitro model for drug screening, studies of hepatotoxicity as well as liver disease, and is considered a gateway technology to future cell therapy applications. However, we recently reported that current protocols for deriving hepatocyte-like cells (HLC) from iPSC fail to restrict differentiation to the hepatic lineage. Instead, single cell transcriptomics and protein expression analysis uncovered that current methods induce hybrid differentiation, leading to the establishment of abundant hepatic and intestinal gene expression signatures within individual HLC, thereby compromising hepatocyte functionality and phenotype.</p> Methods <p>Differentiation of iPSC to HLC was performed and followed by analysis of transcriptome changes during iPSC to HLC differentiation in comparison to PHH. Differentiation pattern clustering (DiPaC) of differentially expressed genes (DEG) and downstream bioinformatic analysis identified the gene regulatory networks (GRN) involved in establishing hybrid differentiation signatures in HLC, indicating a major influence of caudal-domain type 2 (CDX2) in HLC-IEC hybrid differentiation. CRISPR Cas9-based genetic engineering was used to generate <i>CDX2</i>^{<i>−/−</i>} iPSC, followed by HLC differentiation, transcriptomics and intestinal and hepatic protein expression analysis. The observed phenotypic changes in <i>CDX2</i>^{<i>−/−</i>} HLC were verified by functional analysis of bile canaliculus transport kinetics as well as intestinal enzyme activity and compared to PHH.</p> Results and conclusion <p>Transcriptome analysis of WT iPSC to HLC differentiation in comparison to PHH confirmed the establishment of intestinal differentiation gene expression signatures in HLC and indicated a major role of CDX2 in erroneous lineage decision making of HLC. Absence of CDX2 during iPSC to HLC differentiation promoted hepatic specification through the induction of HHEX and PROX1, while drastically reducing intestinal differentiation signatures. <i>CDX2</i>^{<i>−/−</i>} HLC displayed phenotypic maturation of bile canaliculi, including loss of intestine-associated membrane proteins (e.g. IBAT, SI, LCT), increase in hepatic transporters (e.g. <i>BSEP</i>) and size reduction, leading to closer functional and architectural resemblance to bile canaliculi formed by PHH.</p> Graphical abstract <p></p>