Chronic infection by hepatitis B virus results from an inability to clear the virus, which is associated with liver disease and liver cancer. Tumor necrosis factor alpha (TNF-alpha) is associated with noncytopathic clearance of hepatitis B virus in animal models. Here we demonstrate that the nuclear factor kappaB (NF-kappaB) signaling pathway is a central mediator of inhibition of hepatitis B virus by TNF-alpha and we describe the molecular mechanism. TNF-alpha is shown to suppress hepatitis B virus DNA replication without cell killing by disrupting the formation or stability of cytoplasmic viral capsids through a pathway requiring the NF-kappaB-activating inhibitor of kappaB kinase complex IKK-alpha/beta and active transcription factor NF-kappaB. Hepatitis B virus replication could also be inhibited and viral capsid formation could be disrupted in the absence of TNF-alpha solely by overexpression of IKK-alpha/beta or strong activation of NF-kappaB. In contrast, inhibition of NF-kappaB signaling stimulated viral replication, demonstrating that HBV replication is both positively and negatively regulated by the level of activity of the NF-kappaB pathway. Studies are presented that exclude the possibility that HBV inhibition by NF-kappaB is carried out by secondary production of gamma interferon or alpha/beta interferon. These results identify a novel mechanism for noncytopathic suppression of hepatitis B virus replication that is mediated by the NF-kappaB signaling pathway and activated by TNF-alpha.