Naturally occurring deletions in the hepatitis B virus pre-S1 domain have been frequently found during persistent viral infection. In this study we have investigated the functional properties of a mutant viral genome that carries an in-frame deletion of 183 nucleotides in the pre-S1 region. This deletion removes the promoter of the small envelope gene. Transfection into human hepatocellular carcinoma cells of a replication-competent construct containing this deletion resulted in an increase of intermediate DNA replicative forms compared to those produced by wild-type hepatitis B virus. Northern blot analysis revealed that such cells lack the 2.1-kb transcripts encoding the small envelope protein and that hepatitis B surface antigen was absent as well. Furthermore, nucleocapsids containing the genome with pre-S1 deleted were not secreted, and the deleted large envelope protein was retained with the cytoplasm and exhibited a perinuclear pattern of distribution. However, coexpression with the small envelope protein was sufficient to restore virion secretion and to change the cellular distribution of the deleted large envelope protein. In addition, the creation of point mutations that prevent the synthesis of large or small envelope proteins also inhibited viral secretion and led to increased levels of hepatitis B virus intermediate replicative forms within the cell. These studies suggest that naturally occurring viral mutants with pre-S1 deletions involving the promoter region of the small envelope gene will generate a deleted large envelope protein that is retained in the endoplasmic reticulum, resulting in the accumulation of nucleocapsids containing viral DNA; transcomplementation with the wild-type small envelope protein will allow mutant virion secretion to occur.