Background. Alanine aminotransferase (ALT) flares occur frequently during peginterferon (PEG-IFN) therapy. We related occurrence of flares to presence of precore (PC) and/or basal core promoter (BCP) mutants and studied kinetics of hepatitis B e antigen (HBeAg) and hepatitis B surface antigen (HBsAg) levels during flares. Methods. Fifty of 214 (23%) patients treated with PEG-IFN +/- lamivudine for 52 weeks experienced flares. Flares were host-induced (ALT elevation followed by HBV DNA decline, n = 19), virus-induced (HBV DNA increase with subsequent ALT elevation, n = 17) or indeterminate (n = 14). Presence of wild-type (WT) or non-WT (detectable PC/BCP mutants) was studied by lineprobe assay. Results. Fifty-eight percent of host-induced flares occurred in WT HBV patients, whereas 94% of virus-induced flares occurred in patients with PC and/or BCP mutants (P = .003). HBsAg loss was only achieved in patients with a host-induced flare, and WT patients with a host-induced flare cleared HBsAg in 64% of cases. Serum HBsAg levels declined after a host-induced flare, whereas virus-induced flares were accompanied by stable or increasing levels of HBsAg. Patients with a host-induced flare achi Conclusions. Host-induced flares are associated with WT virus and may result in decline and clearance of HBV DNA, HBeAg, and HBsAg. Monitoring of HBsAg levels during and after flares may help predict a favorable treatment outcome.