The envelope of hepatitis B virus contains three related glycoproteins (termed L, M and S) produced by alternative translation initiation in a single coding region. The smallest of these, the S protein, is a 24 kDa glycoprotein with multiple transmembrane domains. The M and L proteins contain the entire S domain at their C-termini, but harbor at their N-terminal additional (preS) domains of 55 or 174 amino acids, respectively. Most of these preS residues are displayed on the surface of mature virions and hence would be expected to be translocated into the endoplasmic reticulum (ER) lumen during biosynthesis. Using a coupled, in vitro translation/translocation system we now demonstrate that, contrary to expectation, virtually all preS residues of the L protein are cytoplasmically disposed in the initial translocation product. This includes some preS sequences which in the M protein are indeed translocated into the ER lumen. Since preS sequences are found on the external surface of the virion envelope, our results indicate that during or following budding a dramatic reorganization of either the envelope proteins or the lipid bilayer (or both components) must occur to allow surface display of these sequences. These findings imply that some membrane budding events can have remarkable and previously unsuspected topological consequences.