Most northern Europeans have only the normal M form of the plasma protease inhibitor alpha 1-antitrypsin, but some 4% are heterozygotes for the Z deficiency variant. For reasons that have not been well-understood, the Z mutation results in a blockage in the final stage of processing of antitrypsin in the liver such that in the Z homozygote only 15% of the protein is secreted into the plasma. The 85% of the alpha 1-antitrypsin that is not secreted accumulates in the endoplasmic reticulum of the hepatocyte; much of it is degraded but the remainder aggregates to form insoluble intracellular inclusions. These inclusions are associated with hepatocellular damage, and 10% of newborn Z homozygotes develop liver disease which often leads to a fatal childhood cirrhosis. Here we demonstrate the molecular pathology underlying this accumulation and describe how the Z mutation in antitrypsin results in a unique molecular interaction between the reactive centre loop of one molecule and the gap in the A-sheet of another. This loop-sheet polymerization of Z antitrypsin occurs spontaneously at 37 degrees C and is completely blocked by the insertion of a specific peptide into the A-sheet of the antitrypsin molecule. Z antitrypsin polymerized in vitro has identical properties and ultrastructure to the inclusions isolated from hepatocytes of a Z homozygote. The concentration and temperature dependence of this loop-sheet polymerization has implications for the management of the liver disease of the newborn Z homozygote.