Hepatic cysts are increasingly found as a mere coincidence on abdominal imaging techniques, such as ultrasonography (USG), computed tomography (CT) and magnetic resonance imaging (MRI). These cysts often present a diagnostic challenge. Therefore, we performed a review of the recent literature and developed an evidence-based diagnostic algorithm to guide clinicians in characterising these lesions. Simple cysts are the most common cystic liver disease, and diagnosis is based on typical USG characteristics. Serodiagnostic tests and microbubble contrast-enhanced ultrasound (CEUS) are invaluable in differentiating complicated cysts, echinococcosis and cystadenoma/cystadenocarcinoma when USG, CT and MRI show ambiguous findings. Therefore, serodiagnostic tests and CEUS reduce the need for invasive procedures. Polycystic liver disease (PLD) is arbitrarily defined as the presence of > 20 liver cysts and can present as two distinct genetic disorders: autosomal dominant polycystic kidney disease (ADPKD) and autosomal dominant polycystic liver disease (PCLD). Although genetic testing for ADPKD and PCLD is possible, it is rarely performed because it does not affect the therapeutic management of PLD. USG screening of the liver and both kidneys combined with extensive family history taking are the cornerstone of diagnostic decision making in PLD. In conclusion, an amalgamation of these recent advances results in a diagnostic algorithm that facilitates evidence-based clinical decision making.