Dominant negative (DN) mutants of the hepadnaviral core protein are potent inhibitors of viral replication. We have previously shown that fusion of sequences derived from the duck hepatitis B virus (DHBV) polymerase (Pol), DHBV small surface protein (S), bacterial beta-galactosidase (lacZ), or green fluorescent protein (GFP) to the carboxy terminus of the DHBV core protein yields DN mutants that inhibit viral replication at the posttranslational level. To elucidate the mechanism(s) of their antiviral action, we analyzed the effect of the DN mutants on RNA pregenome packaging and nucleocapsid assembly. Core-Pol and core-S, but not core-lacZ or core-GFP, markedly interfered with RNA pregenome packaging. Nucleocapsid formation was not affected by any of the mutants. The DN core-GFP fusion protein formed mixed particles with wild-type core protein in the cytoplasm of cotransfected cells and interfered with reverse transcription of the viral pregenome. A subpopulation of chimeric nucleocapsids, however, was shown to overcome the block in DNA synthesis and produce mature viral DNA. Thus, at least 2 steps within the viral life cycle can be targeted by DN DHBV core proteins: 1) packaging of the viral pregenome; and 2) reverse transcription within mixed particles. The fact that some mixed particles retain replication competence demonstrates a high structural flexibility of nucleocapsids and indicates a possible mechanism of viral escape.