We previously reported two mutually exclusive mutations in the precore region of hepatitis B virus: M1 (T-1856, proline-serine substitution at codon 15) and M2 (A-1896, stop codon at codon 28). This study was conducted to determine if the presence of precore mutants affect spontaneous or interferon (IFN)-induced hepatitis B e antigen (HBeAg) clearance. Sera from 201 hepatitis B e antigen positive Chinese patients (including 106 who participated in a controlled trial of IFN therapy) with chronic hepatitis B virus (HBV) infection were analyzed by direct sequencing of HBV DNA after amplification by polymerase chain reaction (PCR) assay. Forty-three (21%) patients had M1 (T-1856), and 20 patients (10%) had M2 (A-1896). During a follow-up period of 1 to 7 years, 75%, 28%, and 26% of those with M2 (A-1896), M1 (T-1856), and wild type sequence respectively, cleared HBeAg (P < .0001). Eighteen (67%) of 27 patients with wild-type sequence but none of 10 patients who had M1 (T-1856) in their initial samples developed M2 (A-1896) after loss of HBeAg (P < .0001). Sustained antiviral response was achieved in 55%, 0%, and 17% of interferon-treated patients who had M2 (A-1896), M1 (T-1856), and wild-type sequence, respectively, initially (P = .04). However, patients with M2 (A-1896) were also more likely to have elevated pretreatment aminotransferase levels (P = .02). In summary, HBeAg-positive Chinese patients with M2 (A-1896) were mor likely to clear HBeAg, and to do so earlier.(ABSTRACT TRUNCATED AT 250 WORDS)