Interferon-alpha has been shown recently to selectively enhance hepatocyte expression of HBsAg/pre-S2 in chronic hepatitis B virus infection in a way that may enhance immune recognition. To determine the effect of interferon-gamma on hepatitis B virus antigen expression, hepatocytes isolated from patients with chronic hepatitis B virus infection were incubated in the absence or presence of interferon-gamma and viral antigen expression was assessed by both radioimmunoassay and immunocytochemistry using appropriate monoclonal antibodies. Interferon-gamma inhibited the expression of all hepatitis B virus antigens tested. Intracellular HBsAg measured by radioimmunoassay of sonicated hepatocytes fell by 29% with 1 U/ml (p less than 0.01) and 36% with 10 U/ml of interferon-gamma (p less than 0.001) compared with control treatment. Secreted HBsAg was reduced by 19% with 10 U/ml of interferon-gamma (p less than 0.01). Intracellular HBeAg was also decreased by 29% with 1 U/ml (p less than 0.05) and 42% with 10 U/ml of interferon-gamma (p less than 0.05), but no significant change was found in the amount of secreted HBeAg. The proportion of hepatocytes containing various hepatitis B virus antigens and the intracellular viral antigen staining densities also fell significantly with interferon-gamma incubation. Interestingly, the addition of interferon-gamma abolished the augmenting effect of interferon-alpha on intracellular HBsAg. These data indicate that interferon-gamma, in contrast to interferon-alpha, has an inhibitory effect on hepatocyte expression of all hepatitis B virus antigens including HBsAg/pre-S2, suggesting that this may be one factor that accounts for their difference in clinical activity in patients with chronic hepatitis B virus infection.