OBJECTIVE To review the indications, efficacy, and toxicity of interferon alfa in the treatment of chronic hepatitis B and C. METHODS English-language literature pertaining to chronic hepatitis B and C and their management with interferon reported between 1980 and June 1995 was identified through computer searches using MEDLINE and through extensive searching of bibliographies and identified articles. RESULTS Two major causes of chronic hepatitis are hepatitis B virus and hepatitis C virus (HBV and HCV). Worldwide, HBV infection is a major cause of cirrhosis and hepatocellular carcinoma, but in the US it is mainly a disease of high-risk groups. In the US, and particularly the southern portion, HCV is more common. Like HBV, HCV also may cause cirrhosis and hepatocellular carcinoma. Except for interferon therapy, the ability to effectively treat chronic hepatitis is limited. Interferon has antiviral, antiproliferative, and immunomodulatory activity. This agent is indicated in patients who have histologic evidence of chronic hepatitis and ongoing viral replication. Thirty percent to 40% of patients with HBV achieve loss of serum HBV e antigen and HBV DNA after treatment with interferon alfa 5 million units/d or 10 million units three times weekly for 16 weeks. Fifty percent of patients with chronic HCV respond to interferon 3 million units three times weekly for 6 months, but half of these relapse within the next 6 months. Prolonged use (18 months) may provide longer term responses in HCV. Adverse effects are common, often dose-dependent, and usually transient. A flu-like syndrome occurs early in the treatment, but fatigue is the most common adverse effect and persists throughout therapy. Long-term interferon treatment has not been extensively evaluated and the impact on survival rates is not known. CONCLUSIONS Interferon is the only agent to have shown a consistent therapeutic effect on chronic hepatitis. Response of HBV to interferon is usually sustained, while a recurrence of HCV occurs in 50% of those who initially respond. Despite the benefits of interferon, its adverse effects and impact on hepatitis must be considered before treatment can be freely advocated.