A polarizable intermolecular potential function (PIPF) for simulation of liquid alcohols has been developed. This represents the first systematic study of a class of organic liquids using such potential functions. The PIPF includes a pairwise additive component, consisting of the familiar Lennard-Jones and Coulombic form, and a nonadditive polarization term. The empirical parameters were optimized through a series of statistical Monte Carlo simulations of liquid methanol, ethanol, 1-propanol, 2-propanol, and 2-methyl-2-propanol, which cover the functionalities of all simple alkanols. The computed heats of vaporization and densities for these liquids using the final parameters are within 1 % and 3% of experimental values, respectively. The polarization effects were found to be significant in all liquids, comprising 10-20% of the total energy of the liquids or over 20% of the electrostatic component. A unique feature in the present parameter optimization is to make use of computed polarization energies and induced dipole moments from separate Monte Carlo simulations employing a combined quantum mechanical and molecular mechanical (QM/MM) approach. In the latter calculations, one alcohol monomer is treated quantum mechanically by the AM1 theory, which is embedded in the liquid of the same alcohol represented by the empirical OPLS potential. Our PIPF results are in accord with the combined QM/MM simulations. In addition, structural features including hydrogen bonding interactions and radial distribution functions were examined and were found to be in good agreement with previous computational results.