Liver cancer stem cells (CSCs) were involved in tumorigenesis, progression, recurrence, and drug resistance of hepatocellular carcinoma (HCC). miR‐365 was downregulated in hepatocellular carcinoma and inhibited HCC cell proliferation and invasion. However, the role of miR‐365 in liver cancer stem cells was unknown. Herein, we observed a remarkable decrease of miR‐365 expression in CD133 or EpCAM‐positive liver CSCs as well as in CSC‐enriched hepatoma spheres. Up‐regulated miR‐365 suppressed liver CSC expansion by inhibiting the dedifferentiation of hepatoma cells and decreasing the self‐renewal ability of liver CSCs. Mechanistically, bioinformatic and luciferase reporter analysis identified Ras‐related C3 botulinum toxin substrate 1 (RAC1) as a direct target of miR‐365. Overexpression of miR‐365 in hepatoma cells downregulated the RAC1 mRNA and protein expression. RAC1 also could promote the expansion of liver CSCs. The special RAC1 inhibitor EHop‐106 or RAC1 overexpression abolished the discrepancy in liver CSC proportion and the self‐renewal capacity between miR‐365 overexpression hepatoma cells and control cells, which further confirmed that RAC1 was required in miR‐365‐suppressed liver CSCs expansion. miR‐365 was downregulated in liver CSCs and could inhibit HCC cells dedifferentiation and liver CSCs expansion by targeting RAC1 signaling.