Brain water may increase in hepatic encephalopathy (HE). Diffusion tensor imaging was performed in patients with cirrhosis with or without HE to quantify the changes in brain water diffusivity and to correlate it with neuropsychological (NP) tests. Thirty-nine patients with cirrhosis, with minimal (MHE) or overt HE, were studied and compared to 18 controls. Mean diffusivity (MD) and fractional anisotropy (FA) were calculated in corpus callosum, internal capsule, deep gray matter nuclei, periventricular frontal, and occipital white matter regions in both cerebral hemispheres. The MD and FA values from different regions in different groups were compared using analysis of variance and Spearman's rank correlation test. In 10 patients with MHE, repeat studies were performed after 3 weeks of lactulose therapy to look for any change in MD, FA, and NP scores. Significantly increased MD was found with insignificant changes in FA in various regions of brain in patients with MHE or HE compared with controls, indicating an increase in interstitial water in the brain parenchyma without any microstructural changes. A significant correlation was found between MD values from corpus callosum, internal capsule, and NP test scores. After therapy, MD values decreased significantly and there was a corresponding improvement in NP test scores. Further analysis showed that MD values were different for different grades of minimal or overt HE. In conclusion, the increase in MD with no concomitant changes in FA in cirrhosis with minimal or early HE indicates the presence of reversible interstitial brain edema.