The natural course of perinatally acquired hepatitis B virus (HBV) infection has three phases. In the first 'immune tolerance phase', patients are HBeAg positive and have high serum levels of HBV DNA, but have no symptoms, normal ALT levels and minimal histological activity. The second 'immune clearance phase' usually occurs between 15 and 35 years of age, during which HBV replication declines, accompanied by increased serum ALT levels and inflammatory activity in the liver; HBeAg to anti-HBe seroconversion is then observed, frequently preceded by a flare of the ALT level. The average rate of spontaneous HBeAg seroconversion is 10% per year. In the third 'low-replicative phase', serum HBsAg persists, but HBeAg is no longer detectable and HBV DNA can only be detected by PCR assay. During this phase, patients are usually asymptomatic and liver disease is inactive; some patients, however, may progress to cirrhosis and hepatocellular carcinoma (HCC). The ultimate outcome of chronic HBV infection appears to depend on the duration and severity of liver injury during the immune clearance phase. About 2.1% of patients with chronic type B hepatitis develop cirrhosis each year. Patients who have a severe acute exacerbation complicated by subacute hepatic failure or who have recurrent episodes of acute exacerbations with bridging hepatic necrosis are more likely to develop cirrhosis. A significant proportion of those with HBsAg eventually develop HCC; they have a 100-fold increased risk of HCC relative to those without. The development of HCC, however, is closely related to the severity of the underlying liver disease. The annual incidence of HCC is only 0.1% in asymptomatic HBsAg individual, 1% in patients with chronic hepatitis B, but increases to 3-10% in patients with cirrhosis. Some anti-HBe-positive patients continue to have active liver disease and they should be tested for HBV DNA by hybridization assay to determine whether the disease results from replicative precore mutant HBV infection or other causes of liver disease, such as superinfection with HCV and HDV. A substantial number of apparently healthy HBV-infected individuals are first recognized when they present with episodes of acute hepatitis. About 30% of these cases could be attributed to other hepatotropic virus superinfection. Acute viral hepatitis in patients with concurrent HBV infection is associated with an increased risk of fulminant hepatic failure. Finally, HBsAg disappears from serum in about 1% of patients each year. HCV superinfection can enhance the termination of HBsAg positivity. HCV, however, replaces HBV as the dominant cause of chronic viral hepatitis. The outcome of HBV-infected persons with 'spontaneous' seroclearance of HBsAg is usually favourable, though progress to cirrhosis and HCC is still possible.