Hepadnavirus polymerases initiate reverse transcription in a protein-primed reaction that involves the covalent linkage of the first deoxyribonucleotide to the polymerase polypeptide. We recently expressed human hepatitis B virus (HBV) reverse transcriptase (pol) in insect cells by using the recombinant baculovirus system. The purified protein is active in nucleotide priming and reverse transcription reactions. In this report, we demonstrate that the tyrosine residue at amino acid number 63 within the TP (terminal protein) domain of the polymerase is the site of covalent linkage of the first nucleotide of minus-strand DNA. Analysis of pol polypeptides with mutations in the TP and RT (reverse transcriptase) domains indicated that both domains were required for in vitro nucleotide priming activity. Polymerase proteins with mutations in the TP and RT domains were not capable of complementing each other in the nucleotide priming reaction, suggesting that transcomplementation between full-length polypeptides was not possible. However, when the TP and RT domains were expressed as separate polypeptides, they formed a highly stable complex that was active in nucleotide priming and reverse transcription. The presence of an epsilon stem-loop dramatically increased the nucleotide priming activity in transcomplementation assays, even though full-length pol displayed similar activities in the absence and presence of epsilon. These data raise the possibility that in the transcomplementation assay, epsilon may play a role in the formation of a functional complex between TP and RT, rather than being required only as the template for nucleotide priming. The results indicate that using the baculovirus system, it is possible to dissect the protein-protein and protein-RNA interactions required for HBV genome replication.