Hepatic encephalopathy (HE) is a prognostically relevant neuropsychiatric syndrome that occurs in the course of acute or chronic liver disease. Besides ascites and variceal bleeding, it is the most serious complication of decompensated liver cirrhosis. Ammonia and inflammation are major triggers for the appearance of HE, which in patients with liver cirrhosis involves pathophysiologically low-grade cerebral oedema with oxidative/nitrosative stress, inflammation and disturbances of oscillatory networks in the brain. Severity classification and diagnostic approaches regarding mild forms of HE are still a matter of debate. Current medical treatment predominantly involves lactulose and rifaximin following rigorous treatment of so-called known HE precipitating factors. New treatments based on an improved pathophysiological understanding are emerging.