Chronic hepatitis B is caused by persistent infection with the hepatitis B virus (HBV), a unique DNA virus that replicates through an RNA intermediate produced from a stable covalently closed circular DNA molecule. Viral persistence appears to be due to inadequate innate and adaptive immune responses. Chronic infection has a variable course after several decades resulting in cirrhosis in up to one-third of patients and liver cancer in a proportion of those with cirrhosis. Sensitive assays for HBV DNA levels in serum have been developed that provide important insights into pathogenesis and natural history. Therapy of hepatitis B is evolving. Peginterferon induces long-term remissions in disease in one-third of patients with typical hepatitis B e antigen (HBeAg) positive chronic hepatitis B, but a lesser proportion of those without HBeAg. Several oral nucleoside analogues with activity against HBV have been shown to be effective in suppressing viral levels and improving biochemical and histological features of disease in a high proportion of patients with and without HBeAg, at least in the short term. What is uncertain is which agent or combination of agents is most effective, how long therapy should last, and which criteria should be used to start, continue, switch or stop therapy. Long-term therapy with nucleoside analogues may be the most appropriate approach to treatment, but the expense and lack of data on long-term safety and efficacy make recommendations difficult. Clearly, many basic and clinical research challenges remain in defining optimal means of management of chronic hepatitis B.