Systemic analysis for chromosomal instability and inactivation of cell cycle checkpoints are scarce during hepatocarcinogenesis. We studied 24 patients with chronic B viral cirrhosis including 30 cirrhotic regenerative nodules, 35 low-grade dysplastic nodules, 15 high-grade dysplastic nodules, 7 dysplastic nodules with hepatocellular carcinoma foci, and 18 hepatocellular carcinomas. Eight normal livers were studied as the control group. Telomere length and micronuclei were detected by Southern blot and Feulgen-fast green dyeing technique, respectively, and p21(WAF1/CIP1) expression was studied by immunohistochemistry. Micronuclei >1 per 3000 hepatocytes were found in 17% of low-grade dysplastic nodules, 87% of high-grade dysplastic nodules, and 100% of high-grade dysplastic nodules with hepatocellular carcinoma foci and hepatocellular carcinomas in contrast to those of all normal livers, and 90% of cirrhosis showed no micronuclei. The micronuclei index showed a gradual increase during hepatocarcinogenesis and there was a significant increase between cirrhosis and low-grade dysplastic nodules, low-grade dysplastic nodules and high-grade dysplastic nodules, and high-grade dysplastic nodules and hepatocellular carcinomas. Telomere length showed a gradual shortening during hepatocarcinogenesis and a significant reduction was found in high-grade dysplastic nodules (P=0.024) and hepatocellular carcinomas (P=0.031) compared with normal and cirrhotic livers. The micronuclei index was correlated with telomere shortening (P=0.016). The p21(WAF1/CIP1) labeling index was significantly higher in cirrhosis than in normal livers (P=0.024) and markedly decreased in low-grade dysplastic nodules, high-grade dysplastic nodules, and hepatocellular carcinomas compared with cirrhosis (P<0.05). The p21(WAF1/CIP1) labeling index was associated with telomere length (P<0.001) but not micronuclei index. This study shows that telomere shortening, chromosomal instability, and inactivation of p21(WAF1/CIP1) checkpoint function occur in low-grade dysplastic nodules as well as in high-grade dysplastic nodules, and their cooperation is considered to be critical for malignant transformation during hepatitis B virus associated-multistep hepatocarcinogenesis.