We prospectively studied the HBsAg seroconversion with sequential combination therapy of lamivudine (LAM) and interferon (IFN) in hitherto untreatable ‘immune-tolerant’ chronic hepatitis B in children. In this case–control study, 28 children with immune-tolerant hepatitis B [HBsAg positive for >6 months with near normal aminotransferase level, minimal/no inflammation in liver histology and high viral load (HBV DNA>107 copies/mL)] were treated with LAM alone at 3 mg/kg/day for 8 weeks followed by LAM plus IFN alpha (5 MU/m2 three times a week) for another 44 weeks. They were compared with 34 untreated children. HBV markers (HBsAg, HBeAg, anti-HBe, quantitative HBV DNA) were carried out at baseline, at the end of therapy and 6 monthly thereafter. The mean age was 5.9 ± 3.2 years and 24 were boys. End therapy response: HBe seroconversion was achieved in 11, and of these, five had complete response (HBsAg clearance), 11 did not respond and six had virologic response (DNA undetectable but no HBe seroconversion). Six months after therapy, 10 of the 11 (91%) originally seroconverted children remained seroconverted while one seroreverted. Six of the 28 (21.4%) children lost HBsAg and they remained HBsAg negative and anti-HBs positive on follow-up. After a mean follow-up of 21.1 ± 11.9 months, the status remained same in the responders but one of the nonresponders HBe seroconverted (39.3%). There were no serious side effects of therapy. It is possible to achieve a cure in more than one-fifth of immune-tolerant children with hepatitis B with the sequential combination of LAM and IFN.