Patients with chronic active hepatitis C and cirrhosis often develop hepatocellular carcinoma. Interferon (IFN) seems to be effective in some patients but whether it prevents carcinogenesis is unknown. In a prospective randomised controlled trial, we evaluated the effects of IFN-alpha in cirrhotic patients with HCV infection because of their high risk of hepatocellular carcinoma. 90 patients with compensated chronic active hepatitis C with cirrhosis were randomly allocated to receive IFN-alpha (6 MU three times weekly for 12-24 weeks) (45 patients) or symptomatic treatment (45 controls), and were followed up for 2-7 years. In nine controls, alanine aminotransferase (ALT) decreased to less than 80 IU/L but did not stay in the normal range. In 19 patients given IFN-alpha, ALT decreased to less than 80 IU/L (in seven patients, it became and stayed normal; p = 0.011, Wilcoxon rank-sum test). However, the mean change in ALT was not significantly different between the two groups. The mean change in peak alpha-fetoprotein values was smaller in patients given IFN-alpha than in controls (p = 0.021). The mean change in the serum albumin level was higher in the IFN-alpha group (p < 0.001). The histological activity index in the 12 IFN-alpha patients undergoing a second biopsy after therapy was improved (p = 0.031). Hepatitis C viral RNA disappeared in seven (16%) of the 45 IFN-alpha patients (95% CI, 7-29%) and in none of the 45 controls (0-8%; p = 0.018). Hepatocellular carcinoma was detected in two (4%, 1-15%) IFN-alpha patients and 17 (38%, 24-54%) controls (p = 0.002, Wilcoxon signed-rank test). The risk ratio of IFN-alpha treatment versus symptomatic treatment was 0.067 (0.009-0.530; p = 0.010 Cox's proportional hazards). IFN-alpha improved liver function in chronic active hepatitis C with cirrhosis, and its use was associated with a decreased incidence of hepatocellular carcinoma.