Resident and recruited macrophages are key players in the homeostatic function of the liver and in its response to tissue damage. In response to environmental signals, macrophages undergo polarized activation to M1 or M2 or M2‐like activation states. These are extremes of a spectrum in a universe of activation states. Progress has been made in understanding the molecular mechanisms underlying the polarized activation of mononuclear phagocytes. Resident and recruited macrophages are a key component of diverse homeostatic and pathological responses of hepatic tissue. Polarized macrophages interact with hepatic progenitor cells, integrate metabolic adaptation, mediate responses to infectious agents, orchestrate fibrosis in a yin‐yang interaction with hepatic stellate cells, and are a key component of tumor‐promoting inflammation. Conclusion: A better understanding of macrophage diversity and plasticity in liver homeostasis and pathology may pave the way to innovative diagnostic and therapeutic approaches. (Hepatology 2014;59:2034–2042)