The effect of alpha-interferon treatment on serum levels of hepatitis B virus-encoded proteins was analyzed in eight patients with chronic type B hepatitis who participated in a pilot study of interferon therapy. Three individuals became HBsAg-negative, 4 lost HBeAg but remained HBsAg-positive and 1 remained positive for both HBsAg and HBeAg. Initiation of interferon treatment was rapidly followed by reduction or loss of hepatitis B virus DNA in the serum but by little immediate change in hepatitis B virus antigen levels. Changes in hepatitis B virus antigens were usually delayed. Loss of HBsAg from the serum was preceded by the sequential disappearance of pre-S-encoded proteins (pre-S1 and polymerized human serum albumin) and HBeAg. In patients who lost HBeAg but remained HBsAg-positive, serum levels of pre-S1 and polymerized human serum albumin usually, but did not always, decrease. The individual who remained HBsAg- and HBeAg-positive had unchanged serum levels of pre-S1, polymerized human serum albumin and HBsAg. These results suggest that alpha-interferon inhibits hepatitis B virus DNA replication but has little direct effect on synthesis of hepatitis B virus gene products.