To clarify the course of adenomatous hyperplasia (AH) of the liver, 17 patients with 20 biopsy-proven AH nodules were followed clinically for 1-5 years. At the initial biopsy the mean nodular diameter was 10 (SD 4) mm and the relative cellularity [( mean cellularity of AH divided by mean parenchymal cellularity] x 100) 141 (27). The criteria for diagnosis of malignant transformation of AH were both a doubling of nodular volume and changes on imaging. Between 6 and 50 months after biopsy, 9 of the 18 nodules which could still be accurately identified met the criteria for transformation; histological proof of hepatocellular carcinoma (HCC) was obtained later for 7 of these 9 nodules. The product of diameter and cellularity (transformation index) was the strongest predictor of the time to transformation. 9 AH nodules did not undergo transformation--7 did not meet one or both criteria and 2 became undetectable by imaging. Because of the high risk of malignant transformation, it can be concluded that AH is an absolute precursor of HCC. It should therefore be treated as a potential malignant disorder.