The development of hepatitis B virus (HBV)-associated hepatocellular carcinoma (HCC) frequently follows persistent HBV infection and may arise in individuals who are hepatitis B e antigen (HBeAg) negative, indicating the possible presence of precore/core mutants. It is unclear whether precore/core mutants are associated with tumour development or are selected for after chromosomal integration of the wild-type viral DNA. We studied the status and sequence variation of the precore/core region of HBV in 56 patients with HBV-associated HCC and in various corresponding non-tumour tissues by Southern blot analysis, polymerase chain reaction and direct sequencing. Southern blot showed that integrated HBV DNA existed in 43 of 56 HCC tissues. Sequence analysis revealed mutations in 65% of the HCC (26/40) and 45% (14/31) of the corresponding non-tumour tissues. The mutation at nucleotide (nt) 1896, known to prevent HBeAg synthesis, was detected in 40% (16/40) of the tumours and in 35.4% (11/31) of the non-tumour tissues. Other mutations were found at nt 1899 (eight of 40 in HCC; three of 31 in non-tumour tissues), nt 1898 (seven of 40 in HCC; two of 31 in non-tumour tissues), nt 1912 (seven of 40 in HCC; none of 31 in non-tumour tissues) and nt 1886 (three of 40 in HCC; none of 31 in non-tumour tissues). To determine whether this finding merely reflected the prevalence of such mutants in this geographical region, HBV DNA from the sera of patients (also in this region) with acute and chronic hepatitis were sequenced. The nt 1896 mutant was found in 5.6% (one of 18) of patients with acute hepatitis B and in 22.8% (nine of 35) of patients with chronic hepatitis B. However, the nt 1898 mutation was not found in any of these sera. The precore/core mutant was observed with increasing frequency from acute hepatitis to chronic hepatitis, non-tumour and HCC, and this difference in frequency was significant between HCC and acute hepatitis B groups (P < 0.01), suggesting that the precore/core mutant or hepatocytes harbouring this mutant may be under immune selection and that such mutations may facilitate integration and subsequent tumour development.