Liver biopsy provides a reliable tool for differentiating biliary obstruction from hepatocellular disease in the evaluation of conjugated hyperbilirubinemia in newborns and young infants. In 158 cases with adequate clinical follow-up there were 10 misdiagnoses (6.3 per cent). Critical retrospective review of the material indicated that the rate of error could be reduced to less than 5 per cent. Diagnostic errors stem most often from “over-reading” mild or moderate degrees of bile duct hyperplasia in hepatitis. Marked bile duct proliferation may also obscure the histologic appearance of alpha 1-antitrypsin deficiency. A lack of bile duct proliferation in biliary atresia will also result in misdiagnosis, but it is a rare finding. In evaluating hepatocellular disese, the histopathologist should be alert to a paucity of intrahepatic bile ducts, which might be a sign of abnormalities in bile salt metabolism, and to a lack of inflammation, which might signal metabolic disese rather than hepatitis.