Two integrated hepatitis B virus (HBV) DNA molecules were cloned from two primary hepatocellular carcinomas each containing only a single integration. One integration (C3) contained a single linear segment of HBV DNA, and the other integration (C4) contained a large inverted duplication of viral DNA at the site of a chromosome translocation (O. Hino, T.B. Shows, and C.E. Rogler, Proc. Natl. Acad. Sci. USA 83:8338-8342, 1986). Sequence analysis of the virus-cell junctions of C3 placed the left virus-cell junction at nucleotide 1824, which is at the 5' end of the directly repeated DR1 sequence and is 6 base pairs from the 3' end of the long (L) negative strand. The right virus-cell junction was at nucleotide 1762 in a region of viral DNA (within the cohesive overlap) which shared 5-base-pair homology with cellular DNA. Sequence analysis of the normal cellular DNA across the integration site showed that 11 base pairs of cellular DNA were deleted at the site of integration. On the basis of this analysis, we suggest a mechanism for integration of the viral DNA molecule which involves strand invasion of the 3' end of the L negative strand of an open circular or linear HBV DNA molecule (at the DR1 sequence) and base pairing of the opposite end of the molecule with cellular DNA, accompanied by the deletion of 11 base pairs of cellular DNA during the double recombination event. Sequencing across the inverted duplication of HBV DNA in clone C4 located one side of the inversion at nucleotide 1820, which is 2 base pairs from the 3' end of the L negative strand. Both this sequence and the left virus-cell junction of C3 are within the 9-nucleotide terminally redundant region of the HBV L negative strand DNA. We suggest that the terminal redundancy is a preferred topoisomerase I nicking region because of both its base sequence and forked structure. Such nicking would lead to integration and rearrangement of HBV molecules within the terminal redundancy, as we have observed in both our clones.