A study was conducted to examine the significance of genetic instability and aberrant DNA methylation during hepatocarcinogenesis. Genomic DNA was extracted from 196 microdissected specimens of noncancerous liver tissue that showed no marked histologic findings or findings compatible with chronic hepatitis or cirrhosis, and 80 corresponding microdissected specimens of hepatocellular carcinoma (HCC) from 40 patients. Loss of heterozygosity (LOH) and microsatellite instability (MSI) were examined by polymerase chain reaction (PCR) using 39 microsatellite markers, and DNA methylation status on 8 CpG islands was examined by bisulfite‐PCR. In noncancerous liver tissues, LOH, MSI, and DNA hypermethylation were found in 15 (38%), 6 (15%), and 33 (83%) of 40 cases, respectively. The incidence of DNA hypermethylation in histologically normal liver was similar to that in chronic hepatitis and cirrhosis, although neither LOH nor MSI was found in histologically normal liver. In cancerous tissues, LOH, MSI, and DNA hypermethylation were found in 39 (98%), 8 (20%), and 40 (100%) of 40 cases, respectively. CpG islands of the p16 gene and methylated in tumor 1, 2, 12, and 31 clones were frequently methylated in cancerous tissues, although neither the thrombospondin‐1 nor the human Mut L homologue (hMLH1) gene was methylated. Absence of silencing of the hMLH1 gene by DNA hypermethylation is consistent with the low incidence of MSI in HCCs. The results of this study indicate that LOH and aberrant DNA methylation contribute to hepatocarcinogenesis; DNA hypermethylation in particular, which precedes or may even cause LOH, is as an early event during hepatocarcinogenesis.