To examine the morbidity of compensated cirrhosis type B, a cohort of 349 Western European, white patients (86% men; mean age, 44 years) with biopsy-proven cirrhosis was followed up for a mean period of 73 months and was studied for occurrence of hepatocellular carcinoma (HCC) and decompensation. At entry into the study all patients were tested for hepatitis B e antigen (HBeAg; 34% of patients were HBeAg-positive) and antibody to hepatitis delta virus (anti-HDV; 20% of patients were anti-HDV-positive); 48% of 252 patients tested were hepatitis B virus (HBV)-DNA-positive. During follow-up HCC developed in 32 (9%) of the 349 patients and decompensation was observed in 88 (28%) of 317 tumor-free patients. Five years after diagnosis, the probability of decompensation was 23%. After the first episode of decompensation the probability of survival was 35% at 5 years. Cox's regression analysis identified three variables that idependently correlated with HCC: age, serum levels of platelets, and liver firmness on physical examination. HBV (HBeAg or HBV-DNA) and HDV (anti-HDV) markers at presentation had no prognostic value for the development of HCC. In conclusion, a high proportion of patients with HBsAg-positive compensated cirrhosis do not experience worsening of their condition for several years, but once decompensation occurs life expectancy is poor. European, white patients with compensated cirrhosis type B are at consistent risk for HCC. Prognostic factors for HCC reflect an advanced stage of cirrhosis and support the hypothesis that development of a tumor could be the likely consequence of long-standing hepatic disease. (Hepatology 1995;21:77–82).