The effect of interferon (IFN) on hepatitis B virus (HBV) replication was investigated in a stable expression system, using HepG2 cells transfected with recombinant HBV DNA. IFN was found to cause a marked reduction in the levels of both minus and plus strands of HBV DNA from core particles in the cytoplasm. Neither HBV DNA from virus particles nor the HBV surface antigen in the culture medium primarily underwent change in quantity by treatment with IFN, as was also found for HBV mRNAs and the HBV core antigen/HBV e antigen in the cytoplasm. IFN exerted no influence on HBV DNA synthesis by endogenous DNA polymerase in the core particle fraction. From these findings, it would appear that IFN inhibits HBV replication by blocking some step in the pregenome RNA-primed assembly of core particles.