The manner by which the trans-acting factor encoded by the 1,828-base-pair (bp) BamHI DNA fragment of hepatitis B virus (HBV) suppresses the production of human beta interferon was determined. Steady-state levels of RNA specific for human beta interferon were decreased in cells that contained the 1,828-bp BamHI DNA fragment of HBV. The reduced accumulation of interferon-specific RNA was due to an inhibition of transcription of the interferon gene by the HBV trans-acting moiety. The expression of the interferon gene that is under the control of a heterologous promoter such as the simian virus 40 early promoter was not altered by the presence of the 1,828-bp BamHI HBV DNA fragment. In contrast, the HBV moiety inhibited the expression of the cat gene, whose expression is controlled by the regulatory DNA region of the human beta interferon gene. These results indicate that the HBV trans-acting moiety suppresses the expression of the human beta interferon gene at the transcriptional level by interacting with the regulatory DNA sequences 5' to the coding sequences for beta interferon.