Ursodeoxycholic acid is a hydrophilic bile acid that under normal circumstances represents a small fraction of the bile acid pool in humans. It is effective in dissolving cholesterol gallstones in appropriately selected patients. Ursodeoxycholic acid improves serum alkaline phosphatase and aminotransferase levels in primary biliary cirrhosis, but its effects on rates of liver transplantation and death are less certain. Ursodeoxycholic acid has no promising effects in several other cholestatic liver diseases, such as cystic fibrosis and intrahepatic cholestasis of pregnancy, but data are too preliminary to make recommendations about its routine use in these conditions. Its effects are mediated by amelioration of damage to cell membranes caused by retained toxic bile acids. Ursodeoxycholic acid improves biliary secretion of bile acids, may improve bile flow, and it has immunomodulatory properties that may reduce immune-mediated liver damage. However, its use in the treatment of cholestatic liver disease remains uncertain pending additional randomized trials.