To establish the impact of transplantation on the course of chronic hepatitis B liver disease we performed a prospective study of the clinical and pathological sequelae of hepatitis B disease in all 22 patients who had renal allografts that functioned for more than 1 year and who were hepatitis B surface antigen (HBsAg)-positive following transplantation. No patient converted to HBsAg-negative. During a mean follow-up of 83 months serial liver biopsies were performed in 20 patients and 1 liver biopsy was available in the remaining 2 patients. Eleven patients died of liver disease, 5 of whom died of hepatic failure, 3 with hepatoma, 2 of gastrointestinal hemorrhage, and 1 of ascites with pleuroperitoneal fistula. Aggressive liver disease was observed in the vast majority of patients: 12 ultimately developed cirrhosis, (mean follow-up 81 months), 6 chronic active hepatitis (mean follow-up 93 months), 3 chronic persistent hepatitis (mean follow-up 89 months), and in 1 patient the presence of HB virus in hepatocytes was the sole morphologic alteration (follow-up 42 months). There was a marked tendency to progression in that 82% of patients with virus only, reactive hepatitis, or chronic persistent hepatitis on initial biopsy subsequently developed chronic active hepatitis or cirrhosis. For comparison, 10 HBsAg-positive patients whose renal failure had been treated by hemodialysis were also studied over a comparable period. Four patients converted to the negative state. Biochemical evidence of persistent liver dysfunction occurred in only 1 patient and no patient has died from complications of liver disease. We conclude that in the immunosuppressed renal transplant patient HB infection often results in the development of cirrhosis, leading to death from hepatoma and hepatic failure. This course is worse than that in dialysis patients. Renal transplantation of HBsAg-positive patients with end-stage renal failure may be inadvisable.