In normal rat liver, thymocyte antigen 1 (Thy1) is expressed in fibroblasts/myofibroblasts and in some blood progenitor cells. Thy1-expressing cells also accumulate in the liver during impaired liver regeneration. The origin and nature of these cells are not well understood. By using RT-PCR analysis and immunofluorescence microscopy, we describe the presence of rare Thy1⁺ cells in the liver lobule of normal animals, occasionally forming small collections of up to 20 cells. These cells constitute a small portion (1.7% to 1.8%) of nonparenchymal cells and reveal a mixed mesenchymal-epithelial phenotype, expressing E-cadherin, cytokeratin 18, and desmin. The most potent mitogens for mesenchymal-epithelial Thy1⁺ cells in vitro are the inflammatory cytokines interferon γ, IL-1, and platelet-derived growth factor-BB, which are not produced by Thy1⁺ cells. Thy1⁺ cells express all typical mesenchymal stem cell and hepatic progenitor cell markers and produce growth factor and cytokine mRNA (Hgf, Il6, Tgfa, and Tweak) for proteins that maintain oval cell growth and differentiation. Under appropriate conditions, mesenchymal-epithelial cells differentiate in vitro into hepatocyte-like cells. In this study, we show that the adult rat liver harbors a small pool of endogenous mesenchymal-epithelial cells not recognized previously. In the quiescent state, these cells express both mesenchymal and epithelial cell markers. They behave like hepatic stem cells/progenitors with dual phenotype, exhibiting high plasticity and long-lasting proliferative activity.