The X gene of the hepatitis B virus codes for a small basic protein and is able to transactivate viral and cellular genes, although the X protein exhibits no DNA-binding activity. The mechanism of transactivation by X protein has been suggested to be via protein-protein interaction(s). We first demonstrated that X protein had amino acid sequences homologous to the functionally essential domain of Kunitz-type serine protease inhibitors and that those sequences were indispensable for the transactivation function. We demonstrated that X protein exhibited an inhibitor activity against hepatic serine proteases, and subsequently found that the protein activated X gene transcription in HepG2 cells and that the X responsive element was localized in the minimal promoter of the X gene. In contrast, the tumor-suppressor gene p53, but not mutant p53, remarkably reduced transcription from the minimal promoter. This p53 repression on the X gene promoter was cancelled by X gene co-expression, probably indicating that the X protein disrupts the p53 tumor suppressor function in the nucleus. All data suggest that X protein leads to transactivation of cellular oncogenes by preventing an interaction between p53 and cellular transcription factor(s) consisting of the basal transcriptional machinery.