Hepatocarcinogenesis in hepatitis B virus transgenic mice was studied by means of a correlative cytomorphological and cytochemical approach at different time points in animals from 1 to 34 mo old. HBsAg-positive ground-glass hepatocytes emerged throughout the liver parenchyma in nearly all transgenic mice during the first 4 mo after birth. The panlobular expression of HBsAg persisted until foci of altered hepatocytes appeared (6 to 9 mo of age). Three different types of foci of altered hepatocytes-namely, glycogen-storage foci, mixed cell foci and glycogen-poor foci-developed. Hepatocellular adenomas and carcinomas appeared after 11 mo. Orcein staining revealed frequent transitions between ground-glass hepatocytes extensively expressing HBsAg and glycogen-storage (predominantly clear-cell) foci containing HBsAg-positive cytoplasmic components. Similar transitions between ground-glass hepatocytes and glycogenotic (clear) cells were often found in diffuse parenchymal glycogenosis at 11 or 12 mo. Remnants of HBsAg-positive material were also detected in mixed cell foci, glycogen-poor diffusely basophilic cell foci, hepatic adenoma and hepatocellular carcinoma. These findings suggest that ground-glass hepatocytes are the direct precursor of foci of altered hepatocytes and their neoplastic descendants. The extensive expression of HBsAg is gradually down-regulated during neoplastic transformation, just as the morphological the biochemical phenotypes of foci of altered hepatocytes, hepatic adenoma and hepatocellular carcinoma in transgenic mice resemble those described in chemical hepatocarcinogenesis. The predominant sequence of cellular changes leading from glycogen-storage (predominantly clear cell) foci to mixed cell foci, hepatic adenoma and hepatocellular carcinoma is characterized by a gradual decrease in the activities of glycogen synthase, phosphorylase, glucose-6-phosphatase and adenylate cyclase, whereas glucose-6-phosphate dehydrogenase and pyruvate kinase activities increase. These alterations indicate a shift from the glycogenotic state toward an increase in the pentose phosphate pathway and glycolysis.