Although the biological importance of hepatitis B virus X protein (HBX) in the life cycle of hepatitis B virus has been well established, the cellular and molecular basis of its function remains largely undefined. Despite the association of multiple activities with HBX, none of them appear to provide a unifying hypothesis regarding the true biological function of HBX. Identification and characterization of cellular targets of HBX remain an essential goal in the elucidation of the molecular mechanisms of HBX. Using the Saccharomyces cerevisiae two-hybrid system, we have identified and characterized a novel subunit of the proteasome complex (XAPC7) that interacts specifically with HBX. We also showed that HBX binds specifically to XAPC7 in vitro. Mutagenesis studies have defined the domains of interaction to be critical for the function of HBX. Furthermore, overexpression of XAPC7 appeared to activate transcription by itself and antisense expression of XAPC7 was able to block transactivation by HBX. Therefore, the proteasome complex is possibly a functional target of HBX in cells.