Cholestasis can be defined as the manifestation of defective bile acid transport from the liver to the intestine. Most chronic cholestatic conditions can progress towards cirrhosis. At this stage, liver transplantation is the treatment of choice. Most of the drugs so far evaluated show some degree of efficacy but have major side effects. Given that ursodeoxycholic acid (UDCA) has no apparent toxicity in humans, it was postulated that long-term treatment with this drug might displace endogenous bile acids and thus reverse their suspected toxicity. We demonstrated that long-term UDCA therapy slows the progression of primary biliary cirrhosis and reduces the need for liver transplantation. In this review, we give the rationale for the use of UDCA in cholestasis and discuss its possible mechanisms of action. We also give an overview of current data on UDCA therapy of chronic cholestatic disorders in adults and children.