--Disease Characteristics-- The following criteria must be met prior to study entry and ursodiol treatment: Bilirubin less than 3 mg/dL Alkaline phosphatase at least 1.5 times normal limits Albumin at least 3 g/dL The following criteria must be met prior to randomization to Arms I and II: Primary biliary cirrhosis (PBC), i.e.: Cholestatic liver disease for at least 6 months prior to randomization Liver biopsy compatible with PBC within 6 months prior to randomization No biliary obstruction on ultrasound, computerized tomography, or cholangiography The following exclude: Asymptomatic and stage I liver histology (Ludwig classification) Hepatic encephalopathy Ascites Variceal bleeding No liver disease of other etiology, e.g.: Chronic hepatitis B or C Autoimmune chronic active hepatitis Alcoholic liver disease Sclerosing cholangitis Drug-induced liver disease Symptomatic or obstructive gallstones --Prior/Concurrent Therapy-- At least 6 months since the following immunosuppressives: Cyclosporine Tacrolimus Methotrexate At least 3 months since other immunosuppressives, e.g.: Azathioprine Chlorambucil Colchicine Corticosteroids Penicillamine At least 3 months since rifampin --Patient Characteristics-- Life expectancy: No major illness limiting life span Hematopoietic: WBC at least 2500/mm3 Absolute granulocyte count at least 1500/mm3 Platelet count at least 80,000/mm3 Hepatic: See Disease Characteristics Renal: Creatinine clearance at least 60 mL/min Pulmonary: No diffusion capacity or vital capacity less than 50% of predicted Other: Antimitochondrial antibody positive HIV antibody negative No alcoholism within the past 2 years No epilepsy requiring phenytoin No malignancy within the past 5 years other than skin cancer No pregnant women Adequate contraception required of fertile patients