Cholangiopathies such as primary sclerosing cholangitis (PSC), Alagille Syndrome (AS), polycystic liver disease and cholangiocarcinoma result in end‐stage liver disease. To understand the cell and molecular basis of these progressive disorders, a cell‐based interface would be very useful. Availability of human primary cholangiocytes is a limiting factor, and pluripotent stem cells provide an exciting option of generating unlimited quantity of cholangiocytes for in vitro disease modeling purposes. Our goal is to develop and in vitro platform using stem cell‐derived cholangiocytes to model the pathogenesis of PSC and AS. We established a three stage differentiation program to differentiate pluripotent stem cells to biliary epithelial cells. The first stage involves hepatoblast formation by definitive endoderm induction; a second phase entails biliary specification prompting cholangiocyte progenitors and the final third stage of cholangiocyte maturation. At 16 days post‐differentiation, the expression of biliary markers SOX9, CFTR, cytokeratin 7 (CK7) and CK19 were verified by RT‐qPCR and immunofluorescence assay. Marker expression was similar to that of human gallbladder tissue. Day 16 cells were induced to form organoids in 3D matrigel culture. The cells were organized to become branched tubular structures. The histology of these organoids showed the formation of duct‐like structures which are cytokeratin 19 and CK 8/18 positive with a defined collagen IV positive basement membrane. The tubules were surrounded by connective tissue‐like structures. By day 33, pear‐shaped gallbladder‐like cystic structures emerged. Immunohistochemistry of these tubular organoids showed polarized columnar cells lining the ductular structures. Zo‐1 tight junction proteins were localized to the apical side of the cells facing the lumen. In conclusion, we have developed a 3D in vitro platform to study the bile duct structure formation based on stem cell‐derived cholangiocytes. This system is currently being investigated for studying the effect of primary sclerosing cholangitis risk genes and the deregulation of NOTCH signaling pathway of Alagille Syndrome model.