Hepatitis B virus (HBV), the causative agent of B-type hepatitis in man, is a small enveloped DNA virus that replicates through reverse transcription of an RNA intermediate, the terminally redundant RNA pregenome. An essential highly conserved cis-element present twice on this RNA is the encapsidation signal epsilon, a stem-loop structure that is critical for pregenome packaging and reverse transcription. Epsilon is hence an attractive target for antiviral therapy. Its structure, however, is a potential obstacle to antivirals whose action depends on hybridization, e.g. ribozymes. Here we demonstrate effective in vitro cleavage inside epsilon by hammerhead ribozymes containing flanking sequences complementary to an adjacent less structured region. Upon co-transfection with a HBV expression construct corresponding ribozymes embedded in a U6 snRNA context led to a significant, though modest, reduction in the steady-state level of HBV pregenomes. Inactive ribozyme mutants revealed that antisense effects contributed substantially to this reduction, however, efficient epsilon cleavage by the intracellularly expressed ribozymes was observed in Mg(2+)-supplemented cell lysates. Artificial HBV pregenomes carrying the ribozymes in cis and model RNAs lacking all HBV sequences except epsilon exhibited essentially the same behaviour. Hence, neither the absence of co-localization of ribozyme and target nor a viral component, but rather a cellular factor(s), is responsible for the strikingly different ribozyme activities inside cells and in cellular extracts.