We identified two novel naturally occurring mutations (W74L and L77R) in the small S envelope protein of hepatitis B virus (HBV). Mutation L77R alone resulted in >10-fold-reduced secretion of virions. In addition, the 2.8-fold reduction of the extracellular HBV surface antigen (HBsAg) of mutant L77R from transfected Huh7 cells appeared to be correlated with a 1.7-fold reduction of intracellular HBsAg, as measured by enzyme-linked immunosorbent assay (ELISA). Surprisingly, opposite to the ELISA results, Western blot analysis revealed a near-10-fold-increased level of the intracellular mutant small S envelope protein. The discrepancy between ELISA and Western blot data was due to significant accumulation of the mutant L77R HBsAg in the intracellular pellet fraction. In contrast to HBsAg, the secretion of HBeAg was normal in L77R-transfected cells. The wild-type HBsAg was usually more diffuse and evenly distributed in the cytoplasm, often outside the perinuclear endoplasmic reticulum (ER) and Golgi apparatus, as observed by immunofluorescence assay. In contrast, the L77R mutant HBsAg tends to be highly restricted within the ER and Golgi, often accumulated in the Golgi compartments distal from the nucleus. The almost exclusive retention in the ER-Golgi of L77R HBsAg was similar to what was observed when the large envelope protein was overexpressed. These multiple aberrant phenotypes of mutant L77R can be corrected by a second naturally occurring S envelope mutation, W74L. Despite the accumulation of L77R HBsAg in ER-Golgi of transfected Huh7 cells, we detected no increase in Grp78 mRNA and proteins, which are common markers for ER stress response.