Recent studies have demonstrated the transacting function of the X gene product of hepatitis B virus. However, little information is available on the regulation of X gene expression. In this report, we first investigate a cellular factor regulating X gene transcription by DNA transfection, using the human hepatoma cell line HuH-7, which is permissive for HBV replication as well as X mRNA transcription. A sequence-specific cellular factor was found to bind to the promoter region upstream of the first ATG (nucleotide [nt] 1248) of the X open reading frame. DNase I footprinting analysis showed the binding sequence of this factor to be situated between nt 1097 and 1119, where an 8-bp palindrome structure resides. S1 nuclease analysis of X gene transcripts demonstrated the binding site to be adjacent to two major start sites (nt 1117 and 1125) of X mRNA. Second, we demonstrate that introduction of a mutation into the binding site gives rise to a loss of the binding with a concomitant shift of the transcription start site of X mRNA beyond the 8-bp palindrome structure, causing it to become more heterogeneous. Thus, the promoter-binding protein appears to be involved in directing the transcription initiation site of the X gene toward the downstream region of the X promoter when X protein is produced from X mRNA.