Hepatocellular carcinoma (HCC), the most common primary hepatic malignancy, usually develops in patients with cirrhosis, growing sequentially from low-grade dysplastic nodules to frank malignant HCC. Its recognition is critical because curative treatment and prognosis require early diagnosis. Survival in patients with HCC relates directly to the number, size, and extent of lesions at diagnosis. Imaging of HCC is complicated because the tumor has a varied imaging appearance and frequently coexists with other cirrhotic nodules. Magnetic resonance imaging (MRI), the best available diagnostic technique, offers good contrast resolution and diagnostic sensitivity ranging from 33% to 77%. The main difficulty is not in diagnosing large tumors, but rather small tumors (<2 cm), because of considerable overlap on imaging between benign (regenerative), borderline (dysplastic), and malignant nodules. Increasing degrees of histological malignancy are associated with increasing arterialization and loss of portal blood supply; therefore, recognition of HCC requires dynamic imaging with gadolinium-enhanced T1-weighted sequence. Typically, HCC is a focal lesion with high signal intensity on T2-weighted images, variable signal intensity on T1-weighted images, intense arterial phase enhancement after gadolinium injection, and isointensity or hypointensity at the portal venous phase. The sensitivity of MRI for detecting small lesions is low, and improvement is still needed. Newer contrast agents, higher field strength (3 Tesla) imaging, and perfusion and diffusion MRI techniques possibly will provide greater sensitivity and specificity for detecting small HCCs in the future.