It is estimated that globally there is a marked increase in liver disease with reports of rising morbidity and mortality, particularly in younger age groups. Brainstem auditory evoked potential (BAEP) was recorded in 60 decompensated chronic liver disease (DCLD) subjects who fulfilled the selection criteria and compared to 60 age and gender matched healthy subjects with normal liver functions. DCLD subjects were divided into two inter groups based on presence or absence of hepatic encephalopathy (HE). Group 1 comprises of 30 subjects of grade- I HE and Group 2 included 30 subjects without hepatic encephalopathy (NHE). Absolute and interpeak wave latencies were measured. Results were analysed by student independent t- test using SPSS software 11 version. Statistical significance was tested using P value. From the present study it can be concluded that the central nervous system is involved in liver cirrhosis evidenced by an abnormal BAEP latencies parameters. This shows that there may be progressive demyelination occurring along with axonal loss or dysfunction in liver cirrhosis HE. This study suggests that periodic evaluation of cirrhotic individuals to such test will help in monitoring the progress of encephalopathy. The prime goal of this study is early diagnosis and initiation of treatment before the onset of coma can reduce the fatality rate.