Persistent infection by hepatitis B virus (HBV) is epidemiologically correlated with the prevalence of hepatocellular carcinoma, but its role in tumor development is not yet understood. To study the putative oncogenic potential of HBV, a non-malignant immortal mouse hepatocyte line FMH202 harboring metallothionein promoter-driven simian virus 40 large tumor antigen was transfected with HBV DNA. All stably transfected clones which replicated HBV displayed malignant growth characteristics in soft agar and were tumorigenic upon inoculation in nude mice. The nude mice tumors were histologically classified as differentiated or anaplastic hepatocellular carcinomas. As with human liver carcinomas, rearrangements of in vitro integrated HBV sequences were observed in the nude mouse tumors, and in tumor-derived cell lines. In one case, expression of viral core and surface antigens was blocked in the tumors, correlating with hypermethylation of the HBV genome. However, the expression of X gene was maintained in most tumors and tumor-derived cell lines. X protein was detected in nuclei by immune fluorescence and by immune blot. These results provide the first demonstration that HBV displays oncogenic potential in an experimental system. This system could be useful to functionally identify HBV genes which convey a tumorigenic phenotype.