A hepatitis B virus (HBV) transgenic mouse containing a naturally occurring mutation in the nucleocapsid promoter (A1764T plus G1766A) that inhibits the retinoid X receptor alpha (RXRalpha) plus peroxisome proliferator-activated receptor alpha (PPARalpha) heterodimer from binding to the proximal nuclear hormone receptor recognition sequence has been generated. Viral transcription and replication occur in the liver and kidney. The nucleocapsid promoter mutation does not prevent peroxisome proliferators from increasing viral transcription and replication in the liver of these variant HBV transgenic mice. This suggests that peroxisome proliferators may enhance viral transcription directly in a PPARalpha-dependent manner through the nuclear hormone receptor recognition site in the enhancer 1 region of the HBV genome. Hepatocyte nuclear factor 4 (HNF4) binding to the proximal nuclear hormone receptor recognition sequence in the nucleocapsid promoter appears to limit RNA synthesis from the precore transcription initiation site. Consequently, the variant HBV transgenic mice transcribe very little precore RNA and secrete extremely low levels of hepatitis B e antigen (HBeAg) compared with the wild-type HBV transgenic mice. This is consistent with the suggestion that viruses expressing HBeAg are preferentially eliminated in infected individuals when they seroconvert from HBeAg positive to anti-HBe antibody-positive status, leaving escape HBV variants that have reduced HBeAg expression.