Intrahepatic bile ducts (IHBDs) are epithelial tubular structures that transport bile from the liver to the intestine. Mice lacking Merlin (Nf2), a tumour suppressor that regulates the plasma membrane-cytoskeleton interface, show a biliary expansion phenotype in the liver. However, the basis of the Nf2 phenotype, and indeed the precise sequence of normal IHBD development, have remained unclear. Now, Andrea McClatchey and colleagues investigate IHBD development in normal and Nf2 mutant livers. Initial stages of IHBD formation are normal in Nf2 mutants until E16.5, when an increase in cells expressing the biliary marker Sox9 becomes apparent. This increase is not driven by increased cell division, but rather reflects changes in cell fate allocation and behaviour in the developing tissue. The authors find that wild-type IHBD development involves de novo cell polarisation that starts from a single, Sox9+ cell, and is followed by lumen formation and changes in apical surface area. By contrast, in Nf2 mutants, biliary polarisation and morphogenesis are aberrant, with expanded luminal membranes, more variable apical surface areas, increased size and distinct oblate shape of the lumens, and the incorporation of excess cells. As well as providing new insight into the elegant process of IHBD development, this work also sheds light on what happens when this process goes wrong.