Hepatitis B virus (HBV) infection, either acute or chronic, has been one of the leading health problems in the world. To understand the HBV life cycle and disease process, we set out to study the regulation of viral gene expression. In this paper, we report the characterization of the HBV core promoter: two 3.5-kb transcripts, precore and pregenomic, are made from it. The latter is itself a template for viral genome replication and also encodes viral proteins essential for both viral replication and virion assembly. We identify a short sequence (from nucleotides [nt] 1744 to 1851, referred to as the basic core promoter [BCP]) that is sufficient to direct correct initiation of both precore and pregenomic messages. In addition, the two appear to be regulated in a coordinate manner. Sequences upstream of the BCP (from nt 1636 to 1744, referred to as the core upstream regulatory sequence [CURS]), have a strong stimulating effect on the BCP. Addition of the CURS to the BCP leads to a dramatic increase in both the transcription of two 3.5-kb messages and the production of 42-nm virions from transiently transfected hepatoma cells. The CURS stimulates the BCP in a position- and orientation-dependent manner. Therefore, it is unlikely that the effect is mediated through enhancer II, which has been localized to the same sequence. Deletion analysis of the CURS suggests that it contains multiple regulatory elements that control the BCP in an interactive manner. In accord with this hypothesis, the CURS is found to be bound with many distinct protein factors in footprinting experiments. Among these elements, box alpha (from nt 1646 to 1668) and box gamma delta (from nt 1671 to 1703) are two regulatory elements which individually stimulate promoter activity more than 100-fold.