Hepatitis C virus (HCV) infection causes acute and chronic liver disease often leading to liver cirrhosis and hepatocellular carcinoma. Numerous studies have shown that despite induction of virus specific immunity, a curative response is often not attained; this has led to the hypothesis that HCV genes modulate immunity, thereby enabling chronic infections. This study examined the effects on immune-mediated liver injury in transgenic mice expressing core protein throughout the body and bone marrow chimeras expressing core protein in either the lymphoid compartment or liver parenchyma. Presence of core protein in the liver parenchyma but not in lymphoid cells protects from autoimmune hepatitis induced by mitogen concanavalin A (ConA). Consistent with this observation, core transgenic hepatocytes are relatively resistant to death induced by anti-Fas antibody and tumor necrosis factor alpha (TNFalpha). This protective effect is associated with preferential activation of signal transducer and activation of transcription factor 3 (STAT3) versus STAT1 in livers of ConA-injected animals. In agreement with this effect of core protein on the Janus kinase (JAK)-STAT signaling pathway, transgenic mice accelerate liver regeneration after partial hepatectomy but are not protected from hepatocyte death. In conclusion, HCV core inhibits STAT1 and stimulates STAT3 activation, which protects infected hepatocytes from attack by the cell-mediated immune system and promotes their proliferation.