To determine the effect of corticosteroids on the replication of hepatitis B virus and to assess the relationship between virus replication and prognosis, the behavior of serum and tissue HBcAg was evaluated in 16 patients with severe HBsAg-positive chronic active hepatitis who were treated with prednisone and followed for up to 10 years (mean +/- SEM, 66 +/- 9 months). Hepatitis B virus replication was assessed in serum by a solid-phase radioimmunoassay of Dane particle-associated HBcAg and in liver tissue by indirect immunoperoxidase staining for HBcAg. Despite the presence of severe inflammatory activity, only low levels of hepatitis B virus replication were demonstrated. Mean serum HBcAg levels were low at accession and remained essentially unchanged or gradually decreased during corticosteroid therapy. Serum HBcAg appeared in only one patient in whom no virus replication was detected prior to therapy. HBeAg was frequently detected at low titers by radioimmunoassay when serum HBcAg was undetectable. Loss of HBcAg preceded loss of HBeAg by radioimmunoassay, and disappearance of both markers was a prerequisite for sustained histologic remission. In eight patients, inflammation was present despite absence of serum or tissue HBcAg; in three of these, disease activity continued after loss of HBeAg. We conclude that low levels of hepatitis B virus replication may be associated with severe inflammatory activity, and these levels are not increased by long-term corticosteroid therapy. Inflammation can continue despite loss of HBeAg and absence of detectable virus replication.