Primary sclerosing cholangitis (PSC) is an idiopathic cholangiopathy strongly associated with inflammatory bowel disease (IBD) and characterized by cholestasis, chronic immune infiltration and progressive fibrosis of the intrahepatic and extrahepatic bile ducts. PSC confers a high risk of cholangiocarcinoma (CCA) with PSC-CCA representing the leading cause of PSC-associated mortality. PSC-CCA is derived from cholangiocytes and associated progenitor cells – a heterogeneous group of dynamic epithelial cells lining the biliary tree that modulate the composition and volume of bile production by the liver. Infection, inflammation and cholestasis can trigger cholangiocyte activation leading to an increased expression of adhesion and antigen-presenting molecules as well as the release of various inflammatory and fibrogenic mediators. As a result, activated cholangiocytes engage in a myriad of cellular processes, including hepatocellular proliferation, apoptosis, angiogenesis and fibrosis. Cholangiocytes can also regulate the recruitment of immune cells, mesenchymal cells, and endothelial cells that participate in tissue repair and destruction in settings of persistent inflammation. In PSC, the role of cholangiocytes and the mechanisms governing their transformation to PSC-CCA are unclear however localization of disease suggests that cholangiocytes are a key target and potential regulator of hepatobiliary immunity, fibrogenesis and tumorigenesis. Herein, we summarize mechanisms of cholangiocyte activation in PSC and highlight new insights into disease pathways that may contribute to the development of PSC-CCA. This article is part of a Special Issue entitled: Cholangiocytes in Health and Disease edited by Jesus Banales, Marco Marzioni, Nicholas LaRusso and Peter Jansen.