Hepatocellular carcinoma (HCC) is the third most lethal cancer and resistant to common chemotherapy. Tumor-initiating cells (T-ICs) that are thought to be responsible for tumorigenesis share surface markers and signaling pathways similar to normal tissue stem cells. Identification of T-ICs and elucidation of aberrant epigenetic modulation and self-renewal pathways may provide new insights into hepatic carcinogenesis, metastasis and chemotherapeutic resistance. Histone modification, DNA methylation and microenvironmental changes are considered as key elements to promote the derivation and function of T-ICs. In this review, we intend to compare the similarity and difference between normal liver stem cells and T-ICs, and to define the intrinsic and micro-environmental factors that lead to the transformation from normal liver stem cells to hepatic T-ICs. We believe that etiology, microenvironmental alteration, epigenetic modification and epithelial-mesenchymal transition play a fundamental role in initiating the transformation. Strategies targeting signaling molecules critical in modulating these processes may offer a personalized therapy for HCC in the future.