The emergence of hepatitis B virus variants unable to express HBe protein during late stage of viral infection may represent an important mechanism of viral persistence. The molecular mechanisms responsible for the elimination of HBe expression are nonsense or frameshift mutations or initiation codon mutations in part of its coding sequence, the precore region. So far only 2 of the 29 precore amino acid codons have been found mutated to stop codons in nature, although a total of 10 codons are convertible to stop codons by single nucleotide changes. Since the HBe-coding sequence is largely overlapped by the pregenome encapsidation signal (epsilon signal), a recently found cis-acting element required for the packaging of pregenomic RNA, the absence of other potential nonsense mutants could result from their impairment of the epsilon signal. Seven such potential stop codon mutants were constructed and tested for replication capacities by transfection into a hepatoma cell line. Five mutants were replication competent, but at levels lower than that of a prevalent natural stop codon mutant. The remaining two mutants were completely defective in DNA replication, which clearly explained why these two mutants are not found in nature. Northern blot analysis revealed wild-type levels of RNA transcription by these two mutants but complete lack of packaged pregenomic RNA. Additional studies lent further support to the importance of the epsilon signal in pregenome encapsidation and suggested relaxed sequence requirements for the computer-predicted hexanucleotide bulge region as compared to the hexanucleotide loop of the signal.