Hepatic encephalopathy (HE) is a neuropsychiatric syndrome which can develop in the course of chronic and acute liver disease. It is characterized by cognitive and motoric deficits of varying severity. HE is functional in nature, potentially reversible and is thought to reflect the clinical manifestation of a low-grade cerebral edema, which exacerbates in response to ammonia and other precipitating factors, such as electrolyte disturbances, bleeding, infections, high protein diet, diuretics and sedatives. The action of these rather heterogeneous factors integrates at the level of oxidative/nitrosative stress and astrocyte swelling, which is associated with an oxidative/nitrosative stress response in the brain with consequences for signal transduction, neurotransmission, synaptic plasticity and oscillatory networks in the brain. Manifest HE is diagnosed on the basis of clinical symptoms according to the West Haven criteria, whereas diagnosis of minimal HE requires psychometric or neurophysiological testings. Here objective and reproducible measures to assess HE severity, such as critical flicker frequency or evoked potentials are superior to paper pencil tests. Identification and treatment of precipitating factors is the mainstay of HE therapy. Also intravenous ornithine aspartate, vegetable protein, oral branched chain amino acids, lactulose enemas and liver transplantation are considered to be effective. Whereas the efficacy of oral lactulose and non-resorbable antibiotics in the treatment of an acute HE attack is under debate, the beneficial effect of lactulose and rifaximin in the secondary HE prophylaxis has recently been established.