Preclinical cell-based toxicity screening is an essential stage in the drug development process. Current technology is based on immortalized cell lines, rodent cells and primary human hepatocytes, all of which suffer from shortcomings. Cell lines and rodent cells have limited relevance to human physiology, while primary human cells remain a scarce and variable resource. These systems are inadequate, as evidenced by the high levels of compound attrition in the clinical trial and postmarketing stages of development, producing safety risks and high financial costs. Hepatotoxicity and drug-induced liver injury account for a substantial proportion of compound failures, highlighting the need for accurate and predictive liver toxicity models. Pluripotent stem cell-derived hepatocyte-like cells offer a means of creating physiologically relevant drug screening assays that could serve as an additional method of detecting toxicity in the lead optimization phase of drug development. The scalability and definition of pluripotent cell culture systems are constantly improving, bringing a potentially inexhaustible cell resource closer to industrial translation. Meanwhile, increased understanding of pluripotency, differentiation and reprogramming, combined with optimization of tissue culture environments, will allow the ongoing issues of hepatocyte lifespan and immature function to be addressed. In future, extensive validation of stem cell-derived hepatocyte-like cells against existing drug screening methods will be required if they are to be established as a standard tool for investigating drug toxicity.