We examined the methylation status of CCGG sites in hepatitis B virus (HBV) DNA to determine whether methylation could be responsible for the selective expression of the HBV surface gene in chronic hepatitis B infection and hepatocellular carcinoma. Infected liver tissue from patients with low levels of viral replication was analyzed for HBV DNA copy number per haploid cell genome. Total cellular DNA, with sufficient HBV DNA, was digested with the restriction endonucleases Msp I and Hpa II, to determine whether the HBV DNA was methylated, or HindIII, to determine whether the HBV DNA was integrated or episomal. The cleavage fragments were analyzed by Southern blotting and hybridization to 32P-labeled HBV DNA. In replicative chronic hepatitis B, hypomethylation of the HBV genome correlated with HBV expression in both virions and infected tissue. In carriers with nonreplicative infection, it was difficult to ascertain the role of methylation as copy number was low. HBV DNA copy number was also low in 17 out of 29 of the tumor tissues tested and as many as 14 out of 16 of the adjacent non-neoplastic tissues tested. Integrated sequences were hypermethylated in the PLC/PRF/5 cell line and in six of the tumor tissues suggesting that methylation plays a role in HBV gene repression. However, since DNA from five other tumors was hypomethylated, the belief that methylation per se is an absolute determinant of HBV core gene repression does not hold for human hepatocellular carcinoma tissue. Additional factors, such as gene rearrangements, therefore, must influence HBV expression in hepatocellular carcinoma.