Biliary epithelial cell (BEC)-derived liver regeneration in zebrafish exhibits similarities to liver regeneration in chronic liver injury. However, the underlying mechanisms remain poorly understood. Here, we identified a serine peptidase called prolyl endopeptidase (prep) as an indispensable factor during the BEC-derived liver regeneration process. Prep was significantly upregulated and enriched in bipotential progenitor cells (BP-PCs). Through gain- and loss-of-function assays, prep was found to potently accelerate liver regeneration and drastically increase the proliferation of BP-PCs. Mechanistically, prep expression was directly regulated by ten-eleven translocation 2 (Tet2)-mediated DNA demethylation. More strikingly, Tet2 regulated prep expression by directly interacting and reducing the methylation of CpG sites in the prep promoter. Subsequently, prep activated the PI3K-AKT-mTOR signaling pathway to regulate liver regeneration. Therefore, our study revealed the role and mechanism of Tet2-mediated DNA demethylation-associated upregulation of prep in the proliferation of BP-PCs during liver regeneration. These results identify promising targets for stimulating regeneration following chronic liver injury.