The liver is a key endoderm-derived multifunctional organ within the digestive system. Prospero homeobox 1 (Prox1) is an essential transcription factor for liver development, but its specific function is not well understood. Here, we show that hepatic development, including the formation of intrahepatic biliary and vascular networks, is severely disrupted in prox1a mutant zebrafish. We find that Prox1a is essential for liver growth and proper differentiation but not required for early hepatic cell fate specification. Intriguingly, prox1a depletion leads to ectopic initiation of a Cdx1b-mediated intestinal program and the formation of intestinal lumen-like structures within the liver. Morpholino knockdown of cdx1b alleviates liver defects in the prox1a mutant zebrafish. Finally, chromatin immunoprecipitation analysis reveals that Prox1a binds directly to the promoter region of cdx1b, thereby repressing its expression. Overall, our findings indicate that Prox1a is required to promote and protect hepatic development by repression of Cdx1b-mediated intestinal cell fate in zebrafish.