Liver transplantation of hepatitis B surface antigen (HBsAg)-positive patients has been associated with high morbidity and mortality secondary to hepatitis B (HB) recurrence in the graft. Eight patients of the Queensland Liver Transplant Service were HBsAg positive pretransplant. Six acquired HB infection of the graft, one developed serological recurrence of HB before early death from sepsis, and one HB e antigen-negative patient permanently cleared the virus. HB-infected grafts showed early expression of viral antigen, acute hepatitis, fibrosing cholestatic hepatitis, chronic active hepatitis, cirrhosis, or minimal changes associated with a carrier state. Only in the latter case was HB mild and nonprogressive. Cases of fibrosing cholestatic hepatitis progressed rapidly to liver failure; they showed fibrosis and plates of ductular epithelium extending from portal tracts into lobules, cholestasis, ballooning of hepatocytes, and prominent hepatocyte expression of viral antigens. Perioperative HB immunoglobulin proved ineffective in preventing HB recurrence. One other patient became HBsAg positive for the first time after retransplantation; he developed severe acute hepatitis, then chronic active hepatitis. Our biopsy findings support the view that, in liver allografts, the HB virus may be directly cytopathic.