Renal dysfunction in patients with chronic liver disease encompasses a clinical spectrum of hyponatremia, ascites, and hepatorenal syndrome. Clinical observation has suggested that patients with cirrhosis have hyperdynamic circulation, and recent studies strongly suggest that peripheral arterial vasodilatation and subsequent development of hyperdynamic circulation are responsible for disturbances in renal function. Arterial vasodilatation predominantly occurs in the splanchnic vascular bed, and seems to precede an increase in blood flow in the splanchnic circulation. Nitric oxide plays a central role in progressive vasodilatation, as evidenced by in vivo and in vitro studies. Renal dysfunction negatively affects the prognosis of patients with cirrhosis, as hyponatremia, ascites, and azotemia are associated with increased rate of complications and mortality. Recent advances in understanding the pathophysiology of renal dysfunction have enabled clinicians to develop new diagnostic criteria and therapeutic recommendations. Hepatorenal syndrome is regarded as a potentially reversible disorder, as systemic vasoconstrictors with concomitant albumin administration are emerging as a promising management option, especially in terms of providing bridging therapy for patients awaiting liver transplantation.