Hepatitis B virus (HBV) replication requires the viral polymerase to reverse transcribe the 3.5-kb pregenomic viral RNA within the nucleocapsid. It has been proposed that a sequence element designated phi (phi), which is located 32 nucleotides upstream of the 3' DR1 pregenomic RNA sequence and is complementary to epsilon, is required for efficient minus-strand synthesis because it may mediate the translocation of the viral polymerase plus the three nucleotide primer from epsilon to DR1. A mutation in phi has been identified which can be compensated for with a complementary mutation in epsilon. This observation supports the suggestion that epsilon and phi base pair during the process of polymerase translocation from epsilon to DR1. However, additional mutations in phi were not complemented by the corresponding mutations in epsilon indicating that the functional recognition of epsilon and epsilon/phi stem-loop structures by polymerase probably requires both sequence- and structure-specific information.