The protoplast fusion method for transfection of human cells was used to construct a human epithelial cell line carrying the hepatitis B virus (HBV) core gene (HBc) stably integrated into the genome (GTC2). The plasmid pKYC200 used to construct GTC2 contains the HBc structural gene and its regulatory elements without other HBV genes. Therefore, GTC2 cells provide an in vitro model system to determine the effects of HBc gene expression without interference from other HBV genes. The cytopathological effects observed during the maximal expression of the HBc gene product provide an insight into the role HBc regulation plays in the pathology of HBV infection. The regulation of HBc expression by the methylation of an Hpa II site 280 bp upstream of the AUG encoding the start site of the HBc structural gene provides the first proof for site-specific regulation of a human virus gene by methylation of 5'-methylcytosine. The detection of replicative forms of HBV in lymphocytes from chronic active hepatitis (CAH) and acquired immunodeficiency syndrome disease (AIDS) and the stimulation of HBc gene expression when GTC2 or PLC/PRF/5 cells are treated with 100 units of alpha interferon (Alpha-IFN) suggest that HBV may have a cytolytic effect during the infection of lymphocytes that is important to the immunological abnormalities frequently associated with HBV infection.