Activation-induced cytidine deaminase (AID) is essential for the somatic hypermutation (SHM) and class-switch recombination (CSR) of Ig genes. The mechanism by which AID triggers SHM and CSR has been explained by two distinct models. In the DNA deamination model, AID converts cytidine bases in DNA into uridine. The uridine is recognized by the DNA repair system, which produces DNA strand breakages and point mutations. In the alternative model, RNA edited by AID is responsible for triggering CSR and SHM. However, RNA deamination by AID has not been demonstrated. Here we found that C-to-T and G-to-A mutations accumulated in hepatitis B virus (HBV) nucleocapsid DNA when AID was expressed in HBV-replicating hepatic cell lines. AID expression caused C-to-T mutations in the nucleocapsid DNA of RNase H-defective HBV, which does not produce plus-strand viral DNA. Furthermore, the RT-PCR products of nucleocapsid viral RNA from AID-expressing cells exhibited significant C-to-T mutations, whereas viral RNAs outside the nucleocapsid did not accumulate C-to-U mutations. Moreover, AID was packaged within the nucleocapsid by forming a ribonucleoprotein complex with HBV RNA and the HBV polymerase protein. The encapsidation of the AID protein with viral RNA and DNA provides an efficient environment for evaluating AID’s RNA and DNA deamination activities. A bona fide RNA-editing enzyme, apolipoprotein B mRNA editing catalytic polypeptide 1, induced a similar level of C-to-U mutations in nucleocapsid RNA as AID. Taken together, the results indicate that AID can deaminate the nucleocapsid RNA of HBV.