Hepatocellular carcinoma (HCC), featured with high prevalence and poor prognosis, is the major cause of cancer-related deaths worldwide. As a subgroup of liver cancer cells capable of differentiation, tumorigenesis and self-renewal, liver cancer stem cells (LCSCs) serve as one of the reasons leading to HCC progression and therapeutic resistance. Therefore, in-depth exploration of novel molecular biomarkers related to LSCSs is of great necessity. In our study, we found that human AlkB homolog H5 (ALKBH5) expression was enriched in LCSCs, which could foster proliferation, invasion and migration of the HCC cells. Mechanically, ALKBH5 positively mediated the expression of SOX4 via demethylation, and SOX4 promoted SHH expression at the transcriptional level to activate sonic hedgehog (SHH) signaling pathway. Furthermore, exosomes derived from CD133+ HCC cells could transmit ALKBH5 into THP-1 cells, which might be associated with M2 polarization of macrophages. In summary, the ALKBH5/SOX4 axis plays a significant role in exacerbating LCSC properties via activating SHH signaling pathway, and ALKBH5 could be a critical effector related to macrophage M2 polarization. These findings might provide a promising new biomarker for HCC diagnosis and treatment.© 2023. The Author(s), under exclusive licence to Springer-Verlag GmbH Germany, part of Springer Nature.