Chronic infection with hepatitis B virus (HBV) is one of the major etiological factors in the development of human hepatocellular carcinoma. Transgenic mice that express the HBV X protein (HBx) have previously been shown to be more sensitive to the effects of hepatocarcinogens. Although the mechanism for this cofactor role remains unknown, the ability of HBx to inhibit DNA repair and to influence cell cycle progression suggests two possible pathways. To investigate these possibilities in vivo, we treated double-transgenic mice that both express HBx (ATX mice) and possess a bacteriophage lambda transgene with the hepatocarcinogen diethylnitrosamine (DEN). Histological examination of liver tissue confirmed that DEN-treated ATX mice developed approximately twice as many focal lesions of basophilic hepatocytes as treated wild-type littermates. Treatment of mice with DEN resulted in a six- to eightfold increase in the mutation frequency (MF), as measured by a functional analysis of the lambda transgene. HBx expression was confirmed by immunoprecipitation and Western blotting and was associated with a modest 23% increase in the MF. Importantly, the extent of hepatocellular proliferation in 14-day-old mice, as measured by the detection of proliferating cell nuclear antigen and by the incorporation of 5-bromo-2'-deoxyuridine, was determined to be approximately twofold higher in ATX livers than in wild-type livers. These results are consistent with a model in which HBx expression contributes to the development of DEN-mediated carcinogenesis by promoting the proliferation of altered hepatocytes rather than by directly interfering with the repair of DNA lesions.