The term hepatic encephalopathy encompasses a spectrum of neuropsychiatric abnormalities seen in patients with liver dysfunction. Distinct syndromes are identified in acute liver failure and cirrhosis. Rapid deterioration in consciousness level and increased intracranial pressure that may result in brain herniation and death are a feature of acute liver failure whereas manifestations of hepatic encephalopathy in cirrhosis include psychomotor dysfunction, impaired memory, increased reaction time, sensory abnormalities, poor concentration and in severe forms, coma. In patients with acute-on-chronic liver failure the pathophysiology remains undefined. Ammonia has been considered central to its pathogenesis. In the brain, the astrocyte is the main site for ammonia detoxification, during the conversion of glutamate to glutamine. An increased ammonia level raises the amount of glutamine within astrocytes, causing an osmotic imbalance resulting in cell swelling and ultimately brain oedema. Recent studies suggest that inflammation and it modulators may play a synergistic role with ammonia in the pathogenesis of hepatic encephalopathy. Therapy of hepatic encephalopathy is directed primarily at reducing ammonia generation and increasing its detoxification. The currently accepted regimens to treat hepatic encephalopathy such as lactulose and protein restricted diets need further clinical trials and therefore placebo controlled clinical trials in hepatic encephalopathy are justified. In liver failure, ammonia metabolism involves multiple organs and therefore ammonia reduction will require simultaneous targeting of these organs. The present review describes the pathophysiological basis of hepatic encephalopathy and evaluates the available therapies.