Hepatitis B virus variants harboring nucleotide alterations in the preC-C promoter have been detected in fulminant hepatitis B as well as in HBeAg-seronegative persistent infection. However, it has not been demonstrated that variants with nucleotide alterations in the preC-C promoter cause various disease states. We replaced the preC-C promoter region of a wild-type genome with the most frequent naturally occurring mutated form and introduced it into HepG2 cells. The mutant with coexisting A1762T and G1764A substitutions produced less than one-fifth of the wild-type level of HBeAg. Conversely, the mutant generated 2.4 times more core particle antigen and showed a high-replicator phenotype. RNase protection and quantitative 5' RACE showed a 16- to 32-fold reduction of preC transcripts and a 4-fold induction of C transcripts of the mutant compared to wild-type. The preC transcript of the mutant had a more heterogeneous 5' end than that of the wildtype. However, the mutations did not alter the initiation sites of C transcription. When the promoter region was cloned into CAT plasmids, the mutations had dual effects on preC and C promoter activities, decreasing and increasing them, respectively. These results suggest that these mutations are responsible for the reduced HBeAg production as well as the enhanced replication and core production. Analysis of revertants with either single point mutation showed that T at 1762 is critical for the mutant phenotype.