To investigate the significance of spontaneous hepatitis B e antigen (HBeAg) seroconversion during childhood, 415 hepatitis B surface antigen (HBsAg) carrier children (ages 0 to 15 years) were prospectively followed for 7.1 +/- 2.9 years. Hepatitis B virus (HBV) markers and liver function profiles of each child were tested at least once every 6 months. Among them, 50 were initially anti-HBe positive and 140 seroconverted from HBeAg to anti-HBe during follow-up. Before HBeAg seroconversion, jaundice occurred in 9 and alanine transaminase (ALT) activities elevated in 99 of the 140 seroconverters. Serum ALT returned to normal in all patients within 1 to 5 years of seroconversion. Six had reelevated ALT later after seroconversion. Only 7 (9.7%) of the 72 carrier infants seroconverted before 3 years of age. The peak ALT levels in five of them exceeded 100 IU/L, and two had jaundice before HBeAg seroconversion. One of the early seroconverters developed hepatocellular carcinoma (HCC) at 11 years of age, although his liver function profiles remained normal after HBeAg seroconversion. Liver biopsy specimens from 30 children during the anti-HBe-positive stag e showed inactive cirrhosis in 2 (including one with HCC), chronic hepatitis with marked fibrosis in 1, mild activity and moderate fibrosis in 2, mild activity and mild fibrosis in 9, and minimal histologic changes in the remaining 16. Although most will achieve a normalization of ALT and inactive liver histologic changes, the seroconversion of HBsAg carrier children from HBeAg to anti-HBe is not necessarily an indicator of favorable prognosis; a small proportion of children will develop cirrhosis or even HCC.