Ursodeoxycholic acid (UDCA) is a bile acid, which is present in human bile at a low concentration of only 3% of total bile acids. It is a 7beta-hydroxy epimer of the primary bile acid chenodeoxycholic acid (CDCA). UDCA is isolated from the Chinese drug 'Yutan' a powder preparation derived from the dried bile of adult bears. For centuries, Yutan has been used in the treatment of hepatobiliary disorders. In Japan, it has also been in widespread use as a folk medicine from the mid-Edo period. In Japan, not only basic studies such as isolation, crystallization, definition of the chemical structure and establishment of the synthesis of UDCA have been conducted but clinical studies have been conducted. First reports on the effects of UDCA in patients with liver diseases came from Japan as early as 1961. In the 1970s, the first prospective study of patients with gallbladder stones treated with UDCA demonstrating gallstone dissolution was reported. In late 1980s, a number of controlled trials on the use of UDCA in primary biliary cirrhosis (PBC) were reported. Since then, a variety of clinical studies have shown the beneficial effect of UDCA in liver disease worldwide. To date, UDCA is utilized for the treatment of PBC for which it is the only drug approved by the U.S. Food and Drug Administration (FDA). In recent years, with the advent of molecular tools, the mechanisms of action of bile acids and UDCA have been investigated, and various bioactivities and pharmacological effects have been revealed. Based on the results of these studies, the bioactive substances in bile acids that are involved in digestive absorption may play important roles in signal transduction pathways. Furthermore, the mechanisms of action of UDCA is evidently involved. We reveal the physicochemical properties of UDCA as bile acid and overview the established pharmacological effects of UDCA from its metabolism. Furthermore, we overview the current investigations into the mechanism of action of UDCA in liver disease.