Liver damage caused by toxicity can lead to various severe conditions, such as acute liver failure (ALF), fibrogenesis, and cirrhosis. Among these, liver cirrhosis (LC) is recognized as the leading cause of liver-related deaths globally. Unfortunately, patients with progressive cirrhosis are often on a waiting list, with limited donor organs, postoperative complications, immune system side effects, and high financial costs being some of the factors restricting transplantation. Although the liver has some capacity for self-renewal due to the presence of stem cells, it is usually insufficient to prevent the progression of LC and ALF. One potential therapeutic approach to improving liver function is the transplantation of gene-engineered stem cells. Several types of mesenchymal stem cells from various sources have been suggested for stem cell therapy for liver disease. Genetic engineering is an effective strategy that enhances the regenerative potential of stem cells by releasing growth factors and cytokines. In this review, we primarily focus on the genetic engineering of stem cells to improve their ability to treat damaged liver function. We also recommend further research into accurate treatment methods that involve safe gene modification and long-term follow-up of patients to increase the effectiveness and reliability of these therapeutic strategies.