It is now well recognized that mutations in the hepatitis B virus (HBV) genome occur during the natural course of chronic viral infection. Regions of the viral genome that are frequently affected by such mutations, rearrangements, and/or deletions generally involve the precore promoter, precore, and core as well as the preS gene regions. However, little is known regarding the biologic consequences of these mutations on the functional properties of the variant viral strains with respect to effects on viral replication. In this study, we investigated the functional significance of precore promoter and precore gene mutations that reduce or abolish the synthesis of hepatitis B e antigen (HBeAg). We found that precore promoter mutations diminished the expression of HBeAg but did not affect the synthesis of pregenomic RNA. However, these precore mutations were associated with a modest increase in HBV replication. In contrast, a naturally occurring mutant that carries a termination codon in position 28 of the precore open reading frame demonstrated increased encapsidation of pregenomic mRNA into nucleocapsid particles. Consequently, this variant viral strain demonstrated a substantial increase in the level of viral replication compared to "wild-type" HBV and other precore promoter mutant viral strains. These studies suggest that substitutions in the precore promoter and precore gene not only alter the synthesis of HBeAg but also affect the level of viral replication.