Approximately 5% of the world population is infected by the hepatitis B virus (HBV) which causes a necroinflammatory liver disease of variable duration and severity. Chronically infected patients with active liver disease carry a high risk of developing cirrhosis and hepatocellular carcinoma. The immune response to HBV-encoded antigens is responsible both for viral clearance and for disease pathogenesis during this infection. While the humoral antibody response to viral envelope antigens contributes to the clearance of circulating virus particles, the cellular immune response to the envelope, nucleocapsid and polymerase antigens eliminates infected cells. The class I- and class II-restricted T cell responses to the virus are vigorous, polyclonal and multispecific in acutely infected patients who successfully clear the virus, and they are relatively weak and more narrowly focussed in chronically infected patients who do not. The pathogenetic and antiviral potential of the cytotoxic T lymphocyte (CTL) response to HBV have been demonstrated by the induction of a severe necroinflammatory liver disease following the adoptive transfer of HBV surface antigen-specific CTL into HBV transgenic mice, and by the noncytolytic suppression of viral gene expression and replication in the same animals by a post-transcriptional mechanism mediated by interferon-gamma, tumor necrosis factor-alpha and interleukin-2. The dominant cause of viral persistence during HBV infection is the development of a weak antiviral immune response to the viral antigens. While neonatal tolerance probably plays an important role in viral persistence in patients infected at birth, the basis for poor responsiveness in adult onset infection is not well understood and requires further analysis. Viral evasion by epitope inactivation and T cell receptor antagonism may contribute to the worsening of viral persistence in the setting of an ineffective immune response, as can the incomplete down-regulation of viral gene expression and the infection of immunologically privileged tissues. Chronic liver cell injury and the attendant inflammatory and regenerative responses create the mutagenic and mitogenic stimuli for the development of DNA damage that can cause hepatocellular carcinoma. Elucidation of the immunological and virological basis for HBV persistence may yield immunotherapeutic and antiviral strategies to terminate chronic HBV infection and reduce the risk of its life-threatening sequellae.