A critical shortage of donor organs for treating end-stage organ failure highlights the urgent need for generating organs from human induced pluripotent stem cells (iPSCs). Despite many reports describing functional cell differentiation, no studies have succeeded in generating a three-dimensional vascularized organ such as liver. Here we show the generation of vascularized and functional human liver from human iPSCs by transplantation of liver buds created in vitro (iPSC-LBs). Specified hepatic cells (immature endodermal cells destined to track the hepatic cell fate) self-organized into three-dimensional iPSC-LBs by recapitulating organogenetic interactions between endothelial and mesenchymal cells. Immunostaining and gene-expression analyses revealed a resemblance between in vitro grown iPSC-LBs and in vivo liver buds. Human vasculatures in iPSC-LB transplants became functional by connecting to the host vessels within 48 hours. The formation of functional vasculatures stimulated the maturation of iPSC-LBs into tissue resembling the adult liver. Highly metabolic iPSC-derived tissue performed liver-specific functions such as protein production and human-specific drug metabolism without recipient liver replacement. Furthermore, mesenteric transplantation of iPSC-LBs rescued the drug-induced lethal liver failure model. To our knowledge, this is the first report demonstrating the generation of a functional human organ from pluripotent stem cells. Although efforts must ensue to translate these techniques to treatments for patients, this proof-of-concept demonstration of organ-bud transplantation provides a promising new approach to study regenerative medicine.